The Cook Islands is a self-governing parliamentary democracy in free association with New Zealand and a member of the British Commonwealth. The Cook Islands’ offshore sector makes it vulnerable to money laundering, as the sector offers banking, insurance, and formation of international business companies and trusts. However, due to recent legislative and regulatory changes, the Cook Islands comply with current international standards.
The domestic banking system is comprised of branches of two major Australian banks and the local Bank of the Cook Islands (BCI). Domestic banks are primarily involved in traditional deposit taking and lending. The BCI operates as a stand-alone institution competing against the two Australian banks and is no longer engaged in development lending. Legislation allows for development lending to be undertaken in the future by a separate company not subject to supervision by the Financial Supervisory Commission (FSC). In addition to the three domestic banks, the Cook Islands financial sector also consists of four international banks, six trustee companies, and three offshore and three domestic insurance companies. The domestic insurance companies are not regulated by the FSC, but legislation has been enacted to allow regulation to take place from1 January 2009.
The Cook Islands has an offshore financial sector that licenses international banks and offshore insurance companies and registers international business companies (IBCs). The offshore sector also consists of company services and trusts, including asset protection trusts (APTs). APTs protect the assets of individuals from civil judgments in their home countries and are able to contain a “flee clause.” It is possible, that under a “flee clause,” if a foreign law enforcement agency makes an inquiry regarding the trust, the trust will be transferred automatically to another offshore center. According to officials of the Government of the Cook Islands (GOCI), the “flee clause” exists to transfer APTs in times of emergency, such as a natural disaster, but they may also incorporate clauses designed to avoid the courts of the jurisdiction they are in or investigations by regulatory authorities. In practice they are rarely used, as they are difficult to implement without the trustee finding itself in breach of Cook Islands law.
The Cook Islands was placed on the Financial Action Task Force (FATF) list of Non-Cooperative Countries and Territories (NCCT) in 2000. After the GOCI addressed deficiencies in its anti-money laundering regime by enacting legislative reforms, the FATF removed the Cook Islands from its NCCT list in February 2005. The FATF conducted a year-long monitoring program, which concluded in June 2006, to closely monitor the islands.
The Banking Act 2003 and the Financial Supervisory Commission Act (FSCA) 2003 established a new framework for licensing and prudential supervision of domestic and offshore financial institutions in the Cook Islands. The legislation requires international offshore banks to have a physical presence in the Cook Islands, transparent financial statements, and adequate records prepared in accordance with consistent accounting systems. The physical presence requirement is intended to prohibit shell banks. All banks are subject to a vigorous and comprehensive regulatory process, including on-site examinations and supervision of activities.
The FSCA established the Financial Supervisory Commission as the licensed financial sector’s sole regulator. The FSC is empowered to license, regulate, and supervise the business of banking. It serves as the administrator of the legislation that regulates the offshore financial sector. The FSC can license international banks and offshore insurance companies and register international companies and limited liability companies. It also supervises trust and company service providers. Its policy is to respond to requests from overseas counterparts to the utmost extent possible. The FSC has taken a broad interpretation of the concept of “counterpart” and does not need to establish general equivalence of function before being able to cooperate.
Licensing requirements, as set out in the legislation, are comprehensive. The Banking Act 2003 and a Prudential Statement on Licensing issued in February 2004 contain detailed licensing criteria for both locally incorporated and foreign banks, including “fit and proper” criteria for shareholders and officers, satisfactory risk management, accounting and management control systems, and minimum capital requirements. The Banking Act 2003 defines banking business, prohibits the unauthorized use of the word “bank” in a company name, and requires prior approval for changes in significant shareholding.
By enacting the Financial Transactions Reporting Act (FTRA) 2004, which replaced a similar Act passed a year earlier, the Cook Islands authorities strengthened its anti-money laundering and counterterrorist financing (AML/CTF) legal and institutional framework. The threshold approach of serious offenses is 12 months imprisonment or $5,000 fine. The Financial Supervisory Commission (FSC) supervises and examines financial institutions for compliance with anti-money laundering laws jointly with the Financial Intelligence Unit (FIU). Reviews are underway to consider how the AML/CTF legislation affects other domestic laws. The legislation regulates the small domestic insurance sector and update supervision of the offshore insurance sector. Insurance intermediaries will also be regulated under the proposed legislation.
The FTRA imposes certain reporting obligations on 26 different types of institutions, including banks, offshore banking businesses, offshore insurance businesses, casinos, gambling services, insurers, financial advisors, solicitors/attorneys, accountants, financial regulators, lotteries, money remitters, motor vehicle dealers, dealers in precious metals and stones, and friendly societies. The Minister of Finance can extend the reporting obligation to other businesses when required. Reporting institutions are required to retain all records related to the opening of accounts and financial transactions for a minimum of six years. The records must include sufficient documentary evidence to verify the customer’s identity. In addition, reporting institutions are required to develop and apply internal policies, procedures, and controls to combat money laundering and to develop audit functions to evaluate such policies, procedures, and controls. Reporting institutions must comply with any guidelines and training requirements issued under the FTRA, as amended, and must provide internal training on all anti-money laundering matters. The FTRA provides for administrative and financial sanctions on institutions for noncompliance.
The FTRA requires the FSC to assess the compliance by licensed financial institutions with customer due diligence and record keeping requirements. Resulting reports and documentation from annual inspections are provided to the Cook Islands Financial Intelligence Unit (CIFIU) and the FIU decides if any matters are to be referred for prosecution. The CIFIU is also responsible for assessing compliance by nonlicensed institutions.
The CIFIU is an independent ministry of the Cook Islands Government and is the central unit responsible for the collection, analysis and dissemination of financial information and intelligence on suspected money laundering, terrorist financing and other serious offences to the appropriate authorities in the Cook Islands. The Cook Islands Police are responsible for investigating financial crimes, including money laundering and terrorist financing. The CIFIU is responsible for the supervision of all registered Reporting Institutions in the Cook Islands, as required by the Financial Transactions Reporting Act 2004. For financial institutions this responsibility is shared with the FSC, but is the sole responsibility of the FIU for DNFBPs. In 2008, the CIFIU received 30 STRs; 3,130 CTRs; 2 Border Currency Reports and 6,384 Electronic Funds Transfer Reports, which resulted in a total of 2 intelligence reports. There have been no seizures and/or confiscations related to money laundering or terrorist financing to date.
The FTRA 2004 grants supervisory authority to the CIFIU, allowing it to cooperate with other regulators and supervisors, require reporting institutions to supplement reports, and obtain information from any law enforcement agency and supervisory body. To facilitate information exchange within Cook Islands’ borders, the FIU has signed domestic MOUs with the FSC, Cook Islands Police, as well as Customs and Immigration.
Obligated institutions are required to report any attempted or completed large currency transactions and suspicious transactions to the CIFIU. The currency reporting requirements apply to all currency transactions of NZ$10,000 (approximately $6870) and above, electronic funds transfers of NZ$10,000 and above, and transfers of currency in excess of NZ$10,000 into and out of the Cook Islands. Failure to declare such transactions could incur penalties. The CIFIU is required to destroy a suspicious transaction report if there has been no activity or information related to the report or to a person named in the report for six years. The CIFIU does not have an investigative mandate. If it determines that a money laundering offense, serious offense or terrorist financing offense has been or is being committed; it must refer the matter to law enforcement for investigation. The Attorney General, who is responsible for administrative oversight, appoints the head of the CIFIU.
Cross border movement of cash in and out of the Cook Islands is criminalized under the Proceeds of Crime Act for cash and negotiable bearer instruments over $10,000. Border Cash reports are submitted to the FIU and if the information requires further dissemination, it would be disseminated to the appropriate agency for analysis. However, to date, there has not been any necessity for dissemination of information.
Since June 2004 the Cook Islands had made further progress in implementing its AML/CTF regime. The head of the CIFIU chairs the Coordinating Committee of Agencies and Ministries, which promotes, formalizes and maintains coordination among relevant government agencies; assists the GOCI in the formulation of policies related to AML/CTF issues; and enables government agencies to share information and training resources gathered from their regional and international networks. The AML/CTF consultative group of stakeholders facilitates consultation between government and the private sector, and ensures all financial sector players are involved in the decision making and problem solving process regarding AML/CTF regulations and reporting. The CIFIU is also a member of the Anti-Corruption Committee, along with the Office of the Prime Minister, Police, Crown Law, Audit Office, and the Financial Secretary.
The Terrorism Suppression Act 2004, based on the model law drafted by an expert group established under the auspices of the Pacific Islands Forum Secretariat, criminalizes the commission and financing of terrorism. The United Nations (Security Council Resolutions) Act 2003 allows the Cook Islands, by way of regulations, to give effect to the Security Council resolutions concerning international peace and security.
The Cook Islands is a party to the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime, and the UN Convention for the Suppression of the Financing of Terrorism. The Cook Islands is not a party to the UN Convention Against Corruption.
The Cook Islands is an active member of the Asia/Pacific Group on Money Laundering (APG) and the CFIU is a member of the Egmont Group. The CFIU has bilateral agreements allowing the exchange of financial intelligence with Australia, New Zealand, Philippines, Chinese Taipei, Vietnam and the Philippines. The Cook Islands is still negotiating a memorandum of understanding (MOU) with Thailand and is in the process of signing Mutual Legal Assistance Agreement with Poland. The Cook Islands plans to become a member of the Offshore Group of Banking Supervisors (OGBS), once it has qualified by undergoing further evaluation. The GOCI is an active member of the Association of Financial Supervisors of Pacific Countries and draws on the resources of this association and Pacific Financial Technical Assistance Centre for capacity building for FSC staff. The Cook Islands has no free trade zones; and participates in the Pacific Island Countries Trade Agreement (PICTA).
The Cook Islands has received nine requests for mutual legal assistance since the Mutual Assistance in Criminal Matters Act came into force in 2003. Six have been answered, and three are pending. The Cook Islands has not received any extradition requests from foreign countries, but successfully extradited one person from New Zealand.
The Cook Islands cooperates with the international community on all money laundering, financial crimes, and terrorist related financing issues. The UN 1267 sanction committee’s consolidated list of individuals and entities has been circulated to financial institutions. No accounts with names or entities listed on the UN list are being maintained with any financial institutions in the Cook Islands.
The Government of the Cook Islands should maintain vigilant regulation of its offshore financial sector, including its asset protection trusts, to ensure that its offshore sector continues to comport with international standards. The GOCI should enact and implement Border Currency Reporting legislation, Civil Forfeiture legislation, and a Risk Based Money Laundering and Terrorist Finance regulation, together with amendments to the Financial Transactions Reporting Act and the Terrorism Suppression Act. The Government should continue to monitor alternative money service businesses, and enact legislation governing such businesses in the event that transaction volumes in alternative money services increase. Doing so would further ensure that the GOCI’s status as a low risk AML/CTF jurisdiction that could serve as model for other Pacific Island jurisdictions.
Costa Rica is not a major regional financial center but does have an offshore financial sector and remains vulnerable to money laundering and other financial crimes Illicit proceeds of narcotics trafficking (mainly cocaine); fraud; trafficking in persons, arms trafficking; corruption; and unregulated Internet gaming companies likely are laundered in Costa Rica. Bank fraud, especially via the Internet, appears to be on the rise, though there has not been a rise in use of counterfeit currency. While local criminals are active, the majority of criminal proceeds laundered derive primarily from foreign criminal activity. In 2002, the Government of Costa Rica (GOCR) enacted Law 8204 that supersedes a prior law that only criminalized narcotics-related money laundering. Law 8204 criminalizes the laundering of proceeds from all serious crimes, which are defined as crimes carrying a sentence of four years or more. While Law 8204, in theory, applies to the movement of all capital, current regulations are narrowly interpreted so that the law applies only to those entities that are involved in the transfer of funds as a primary business purpose, such as banks, exchange houses and stock brokerages. Therefore, the law does not cover such entities as casinos, dealers in jewels and precious metals, insurance companies, intermediaries such as lawyers, accountants or broker/dealers, or Internet gambling operations, as their primary business is not the transfer of funds.
Costa Rican financial institutions are regulated by the Superintendent General of Financial Entities (SUGEF), Superintendent General of Securities (SUGEVAL), and the Superintendent of Pensiones (SUPEN). All three entities fall under the National Council of Supervision of the Financial System (CONASSIF). Law 8204 also established Costa Rica’s financial intelligence unit (FIU), the Unidad de Analisis Financiero (UAF). The law obligates financial institutions and other businesses to identify the beneficial owners of all accounts; retain financial records for at least five years; and, to report currency transactions over $10,000 and suspicious transactions, regardless of the amount involved or transaction to the UAF. Law 8204 does not establish any protection for reporting individuals, however failure to file suspicious transaction reports (STRs), can result in monetary sanctions established in Article 81 of the law. The UAF requests, collects and analyzes STRs submitted by obligated entities and cash transaction reports (CTRs) it receives.
The UAF has no regulatory responsibilities. The UAF has access to the records and databases of financial institutions and other government entities, but the Judicial Investigative Organization (OIJ) must obtain a court order if the information collected is to be used as evidence in court. Additionally, there are formal mechanisms in place to share information domestically and with other countries’ FIUs. In spite of its broad access to government information and high levels of cooperation with the financial sector, the UAF is somewhat ill-equipped and under-funded to provide information needed by investigators. In 2009, the UAF plans to hire four additional forensic auditors, and one investigator to bring total staffing to 27. In 2008, the UAF continued to increase the quality of its analysis and forwarded more thoroughly analyzed cases to prosecutors. In 2008, the UAF received 500 STRS and forwarded 36 to the Unidad de Investigacion Financiero (UIF) of the Money Laundering, Financial, and Economic Crimes Unit, the OIJ, under the Public Ministry (Prosecutor’s Office); the entity responsible for investigating financial crimes. The OIJ is assisted by the UAF and has adequately trained staff. In 2008, there were two prosecutions for financial crime.
The UAF does not directly receive CTRs. Each superintendence that receives CTRs holds the CTRs until it determines that further analysis is required or until the UAF requests the CTRs. After analysis, if the UAF thinks that a CTR warrants further investigation, the CTRs would be forwarded to the UIF for investigation.
The GOCR reports that Costa Rica is primarily used as a bridge to send funds to and from other jurisdictions using, in many cases, companies or established banks in offshore financial centers. All persons carrying, entering or exiting Costa Rica are required to declare any amount over $10,000 to Costa Rican officials at ports of entry. Declaration forms are required. Cash smuggling reports are entered into a database maintained by ICD and is shared with appropriate government agencies, including the UAF. The OIJ reports that currency smuggling has increased at land borders; also, money laundering may be occurring through the use of wire-transfer services. Alternative remittance systems exist in Costa Rica, mainly as a result of Costa Rican migration to the United States, or Nicaraguans to Costa Rica. However, there is no confirmation that these remittance systems are used for money laundering. Remittances as of June 2008 totaled approximately $589 million. According to the GOCR, there is a black market for smuggled goods in Costa Rica, but the size is not known. There is no particular evidence that it is being funded by narcotics or other illicit proceeds.
There are 28 free trade zones (FTZs) within Costa Rica, used by approximately 250 companies. The Promotora del Comercio Exterior de Costa Rica (PROCOMER) manages the FTZ regime and has responsibility for registering all qualifying companies. PROCOMER’s qualification process consists of conducting due diligence on a candidate company’s finances and assessing the total cost of ownership. PROCOMER annually audits all of the firms within the FTZ regime and touts its system of tight controls aimed primarily at preventing tax evasion. The four major types of firms operating under Costa Rica’s FTZ regime are manufacturing, professional services, trading, and administrative organizations. PROCOMER reports that there was no evidence of money laundering activity in the FTZs in 2008.
While the formal banking industry in Costa Rica is tightly regulated, the offshore financial sector, which offers banking, corporate and trusts formation services, remains an area of concern. Foreign-domiciled offshore banks can only conduct transactions under a service contract with a domestic bank, and they do not engage directly in financial operations in Costa Rica. They must also have a license to operate in their country of origin. Furthermore, they must comply with Article 146 of the Costa Rican Central Bank’s Organic Law, which requires offshore banks to have assets of at least $3 million dollars, a physical presence in Costa Rica, and be subject to supervision by the banking authorities of their registered country. Shell banks are not allowed in Costa Rica and regulated institutions are forbidden from having any direct or indirect relationships with institutions that may be described as shell banks or fictitious banks. Bearer shares are not permitted in Costa Rica. Currently, six offshore banks maintain correspondent operations in Costa Rica: three from the Bahamas and three from Panama. There are memoranda of understanding (MOUs) between Costa Rica and Panama and the Bahamas to allow easy information exchanges. The GOCR has supervision agreements with its counterparts in both countries, permitting the review of correspondent banking operations. However, these counterpart regulatory authorities occasionally interpret the agreements in ways that limit review by Costa Rican officials. In 2005, the Attorney General ruled that the SUGEF lacked authority to regulate offshore operations due to an apparent contradiction between the 1995 Organic Law of the Costa Rican Central Bank and Law 8204, the primary anti-laundering legislation criminalizing the laundering of proceeds from all serious crime. Draft legislation to correct the contradiction and reassert the SUGEF’s regulatory power was submitted to the national assembly for consideration in 2008. Purportedly, additional but unspecified actions by SUGEF should decrease the number of offshore banks in the next year.
Gambling is legal in Costa Rica, and in April of 2008, five government decrees established new rules to better identify casino ownership and regulate operations. None addressed online casinos and there is no requirement that the currency used in Internet gaming operations be transferred to Costa Rica. There are over 250 Internet sports-book companies registered to operate in Costa Rica. In January 2008, the United States charged 12 individuals with money laundering and gambling offenses related to the operation of a Costa Rican based gambling website and call center that serviced sports books in the U.S.
Articles 33 and 34 of Law 8204 cover asset forfeiture and stipulate that all movable or immovable property used in the commission of crimes covered by this act shall be subject to preventative seizure. When asset seizure or freeze takes place, the property is placed in a legal deposit under the control of ICD. The banking industry closely cooperates with law enforcement efforts to trace funds and seize or freeze bank accounts. During 2008, officials seized over $2 million in narcotics-related assets, much of it in undeclared cash. Seized assets are processed by the ICD and if judicially forfeited, are divided among drug treatment agencies (60 percent), law enforcement agencies (30 percent), and the ICD (10 percent) or as determined by ICD’s council. It is unclear whether GOCR will assist other countries in obtaining nonconviction-based forfeiture since its domestic laws only provide for conviction-based forfeiture.
Although Costa Rica is a party to the major United Nations counterterrorism conventions, including the UN Convention for the Suppression of the Financing of Terrorism, terrorist financing is not yet a crime in Costa Rica. In 2002, a government task force drafted a comprehensive counterterrorism law with specific terrorist financing provisions that has not been enacted. However, a draft of Bill 17009, expected to be enacted in February 2009, explicitly criminalizes the financing of terrorism, and will obviate the expulsion of the UAF from the Egmont Group
Costa Rican authorities receive and circulate to all financial institutions the names of suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee consolidated list and the list of Specially Designated Global Terrorists designated by the United States pursuant to Executive Order (E.O.) 13224. However, these authorities cannot block, seize, or freeze property without prior judicial approval. Costa Rica lacks the ability to expeditiously freeze assets connected to terrorism.
No assets related to designated individuals or entities were identified in Costa Rica in 2008. Yet, according to the Government of Costa Rica (GOCR) there is some evidence of FARC (Revolutionary Armed Forces of Colombia) money laundering operations here. In a high-profile incident in March 2008, a prominent couple from the Costa Rican academic community was found with a safe containing $480,000 in FARC money. The couple was also involved in a real estate transaction on behalf of a prominent FARC leader, which to date has not been investigated.
Costa Rica fully cooperates with appropriate United States government law enforcement agencies and other governments investigating financial crimes related to narcotics and other crimes. Articles 30 and 31 of Law 8204 grant authority to the UAF to cooperate with other countries in investigations, proceedings, and operations concerning financial and other crimes covered under that law.
Costa Rica is a party to the 1988 UN Drug Convention, the UN Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption. The GOCR is a member of the Money Laundering Experts Working Group of the OAS Inter-American Drug Abuse Control Commission (OAS/CICAD). Costa Rica is a member of the Caribbean Financial Action Task Force (CFATF), a Financial Action Task Force (FATF) style regional body. The CFATF conducted a mutual evaluation of Costa Rica in 2006. During the CFATF Plenary in St. Kitts and Nevis in November 2008, the GOCR reported on actions taken to comply with recommendations made by the team of experts who evaluated the GOCR’s anti-money laundering regime in 2006. There were modifications to Bill 17009 and 8204 to clarify the filing of STRs to the UAF, among others. However, the GOCR may still need to amend its laws to provide for a “safe harbor” protection for those who submit suspicious AML/CTF activity reports.
The GOCR should pass legislation that reconciles contradictions regarding the supervision of its offshore banking sector. With the expected passage of the terrorism bill 17009 the loopholes in anti-money laundering legislation, regulations to cover the Internet gaming sector, dealers in jewelry and precious metals, intermediaries such as lawyers, accountants or broker/dealers, casinos, as well as any business activity that might entail the use of cash and other nonbank financial institutions, should be addressed. The GOCR should also consider either adopting civil forfeiture, or, at a minimum, clarify in law or regulation that it can assist other countries with forfeiture when a conviction has been obtained even if the forfeiture is not part of the criminal proceeding. Finally, Costa Rica should ensure that its financial intelligence unit and law enforcement agencies authorities are adequately equipped to combat financial crime.
The Republic of Cote d’Ivoire is an important West African regional financial hub. Money laundering in Cote d’Ivoire is not primarily related to narcotics proceeds. Criminal proceeds that are laundered are reportedly derived from regional criminal activity, such as the smuggling of consumer goods and agricultural products. Reportedly, most of the smuggling networks are organized chiefly by nationals from Nigeria and the Democratic Republic of the Congo. Due to the ongoing political and economic turmoil in Cote d’Ivoire, rule of law implementation remains poor. As a result, Ivorian and other West African nationals are becoming increasingly involved in criminal activities and the subsequent laundering of illicit funds. Public corruption, including embezzlement of public funds and the laundering of those funds also pose concerns. The extent to which Ivorian territory is used in the growing use of West Africa as a transshipment point for drugs from South America to Europe is largely unknown but is of concern to law-enforcement officials. Ivorian law enforcement authorities have little control over the northern half of the country. The ongoing de facto division of the country makes it difficult to assess Ivorian involvement in narcotics trafficking, as well as Cote d’Ivoire’s possible role as a center for the laundering proceeds from narcotics trafficking.
The outbreak of the rebellion in 2002 increased the amount of smuggling of goods across the northern borders, including cocoa, cashews, timber, textiles, tobacco products, and light motorcycles. Reportedly, there has also been an increase in the processing and smuggling of diamonds from mines located in the north. National authority is slowly redeploying, but the government’s control over borders in the formerly rebel-controlled regions of the country remains very weak. The relationship between revenues associated with smuggled goods and narcotics proceeds remains unclear due to the lack of effective border controls in the north. Smuggling of sugar, cotton, cocoa, coffee, cars, and pirated DVDs occurs in the government-controlled south and is motivated by a desire to avoid the payment of taxes (principally value-added taxes). According to the Office of the Customs Financial Enquiries, the cross-border trade of diamond and cocoa over Cote d’Ivoire’s porous borders generates illicit funds that are primarily laundered via informal money services businesses and exchange houses. In addition to informal money service businesses, authorities believe criminal enterprises also use the formal banking system, cash couriers, and the used car and real-estate industries to launder funds. Cash earned by immigrant or migrant workers generally flows out of Cote d’Ivoire, going to extended families outside the region, although there is no evidence that such flows are tied to money laundering.
The banking sector is active, but because banking services were largely absent from the northern part of Côte d’Ivoire until the end of 2007, the public used informal money couriers, money transfer organizations similar to hawaladars and, increasingly, goods transportation companies to transfer funds domestically, as well as within the sub-region. The standard fee for informal money transfer services is approximately ten percent. There is no regulation of domestic informal value transfer systems. Informal remittance transfers from outside Cote d’Ivoire violate West African Central Bank (BCEAO) money transfer regulations.
Hizballah is present in Côte d’Ivoire and conducts fundraising activities, mostly among the large Lebanese expatriate community. The Ivorian government has taken no legal action to prevent the misuse of charitable and or other nonprofit entities that can be used as conduits for the financing of terrorism. Reportedly, the Ministry of Interior Security is addressing this problem.
There are no free trade zones in Cote d’Ivoire. However, in June 2008, the Export-Import Bank of India opened a $21 million line of credit for the Ivorian government to build a free trade zone for information technology and biotechnology in Grand Bassam. The Ivorian government has not yet chosen contractors for the project.
The Economic and Financial Police report an ongoing rise in financial crimes related to credit card theft and foreign bank account fraud. These include wire transfers of large sums of money primarily involving British and American account holders who are the victims of Internet-based advance fee scams. Cote d’Ivoire has no law specifically targeting Internet scams. The Ministry of Finance remains concerned by the high levels of tax fraud, particularly VAT tax fraud, by merchants.
Cote d’Ivoire has the largest bank network in the region. French financial interests account for the majority of retail and other banking and insurance services. The Ivorian banking law, enacted in 1990, prevents disclosure of client and ownership information, but does allow the banks to provide information to judicial authorities such as investigative magistrates. The law also permits the use of client and ownership information as evidence in legal proceedings or during criminal investigations. The Tax and Economic police can request information from the banks. Ivorian authorities recently amended the banking law, which now requires that banks be capitalized with $10 million and nonbank financial institutions (mortgage firms, insurance companies, etc.) with $5 million.
Originally, the penal code criminalized only money laundering related to drug trafficking, fraud, and arms trafficking. On November 29, 2005, the National Assembly adopted the l’Union Economique et Monetaire Ouest Africaine/West African Economic and Monetary Union (l’UEMOA/WAEMU), common law on money laundering. With this law, Cote d’Ivoire adopted the all-crimes approach to money laundering, making it a criminal offense regardless of the predicate offense.
The law focuses on the prevention of money laundering and also expands the definition to include the laundering of funds from all serious crimes. The law does not set a minimum threshold. It mandates standard “know your customer” requirements for banks and other financial institutions and establishes procedures and a suspicious transaction reporting obligation which covered institutions must follow to assist in the detection of money laundering. The law provides a legal basis for international cooperation. The new law includes both criminal and civil penalties, and permits the freezing and seizure of assets, which can be both instruments for and proceeds of crime. Legitimate businesses are among the assets that can be seized if used to launder money or support terrorism or other illegal activities. Authorities cannot seize substitute assets, as assets can only be seized if there is a relationship between the assets and the offense. .
The money laundering law provides for the establishment of a financial intelligence unit (FIU) known as “Cellule Nationale de Traitement des Informations Financieres” (CENTIF) under the Minister of Finance. CENTIF became operational in January 2008. CENTIF can share information with other FIUs in l’UEMOA/WAEMU and with those of non-L’UEMOA/WAEMU countries on a reciprocal basis and with the permission of the Ministry of Finance, as long as those institutions keep the information confidential.
CENTIF is led by a group of six directors, detailed to the agency from the Finance Ministry, the Justice Ministry, police, customs, and the central bank/ CENTIF has 18 technical staff members, including financial analysts, an accountant, an attorney, an economist/statistician, and a computer network manager. It works with previously established investigative units such as the Centre de Recherche Financiere (CRF) at the Department of Customs and the Agence Nationale de Strategie et d’Intelligence (ANSI) at the presidency. The CRF and the ANSI continue to investigate fiscal and customs fraud and counterfeiting. The Economic and Financial police, the criminal police unit (Police Judiciaire), the Department of Territorial Surveillance, the CRF and ANSI all are responsible for investigating financial crimes, including money laundering and terrorist financing. Since its inception, CENTIF has received approximately 20 suspicious activity reports (the majority of them submitted by banks) and has forwarded two cases to prosecutors. To date, no arrests or convictions have resulted. CENTIF has also received three information requests. Although CENTIF has blocked funds, such action has proved counterproductive. Ivorian law allows funds to be blocked for a maximum of 48 hours, unless prosecution of a crime commences. In cases in which action does not take place within 48 hours, the holder of the account becomes aware that he or she is under suspicion and is likely to move the funds elsewhere. CENTIF’s greatest deficiencies relate to a lack of funding and the need for training—both CENTIF’s own employees as well as for prosecutors.
The FIU participates in the newly-formed National Committee, an interministerial committee dedicated to building effectiveness in the anti-money laundering/counterterrorist financing (AML/CTF) regime. The Committee has met seven times and developed a National Strategy and Action Plan for combating money laundering and terrorist financing. The Committee is working with the FIU on training initiatives and has participated in CENTIF’s FIU orientation seminar.
The Ministry of Finance, the BCEAO, and the West African Banking Commission, headquartered in Cote d’Ivoire, supervise and examine banking compliance with AML/CTF laws and regulations. All Ivorian financial institutions must maintain customer identification and transaction records for ten years. Additionally in all BCEAO member countries, banking officials must report all deposits over CFA 5,000,000 (approximately $10,000) to the BCEAO, along with customer identification information. Law enforcement authorities can request access to these records to investigate financial crimes through a public prosecutor. In 2008, there were no arrests or prosecutions for money laundering or terrorist financing.
Legislation requires financial institutions to retain records of all “significant transactions,” which are transactions with a minimum value of CFA 50,000,000 (approximately $100,000) for known customers, for ten years. New money laundering controls apply to nonbank financial institutions such as exchange houses, stock brokerage firms, insurance companies, casinos, cash couriers, national lotteries, nongovernment organizations, travel agencies, art dealers, gem dealers, accountants, attorneys, and real estate agents. The law also imposes certain customer identification and record maintenance requirements on casinos and exchange houses. The tax office (Ministry of Finance) supervises these entities. All Ivorian financial institutions, nonfinancial businesses, and professions subject to the scope of the money laundering law are required to report suspicious transactions. The Ivorian banking code protects reporting individuals. Their identities are not divulged with respect to cooperation with law enforcement authorities.
Cote d’Ivoire monitors and limits the international transport of currency and monetary instruments under L’UEMOA/WAEMU administrative regulation R/09/98/CM/L’UEMOA/WAEMU; it does not have additional domestic laws or regulations. When traveling to another l’UEMOA/WAEMU country, Ivorian and expatriate residents must declare the amount of currency being carried out of the country. When traveling to a destination other than another l’UEMOA/WAEMU country, Ivorian and expatriate residents are prohibited from carrying an amount of currency greater than the equivalent of 500,000 CFA francs (approximately $1,000) for tourists, and two million CFA francs (approximately $4,000) for business operators, without prior approval from the Department of External Finance of the Ministry of Economy and Finance. If additional amounts are approved, they must be in the form of travelers’ checks.
Cote d’Ivoire does not have a specific law that criminalizes terrorist financing, as required under UNSCR 1373, although financing of all “serious crimes” falls under the domain of the law. Until the passage of the 2005 money laundering law, the Government of Cote d’Ivoire (GOCI) relied on several l’UEMOA/WAEMU directives on terrorist financing, which provided a legal basis for administrative action by the GOCI to implement the asset freeze provisions of UNSCR 1373. The BCEAO and the government report that they promptly circulate to all financial institutions the names of suspected terrorists and terrorist organizations on the UNSCR 1267 Sanctions Committee’s Consolidated List and those on the list of Specially Designated Global Terrorists designated by the U.S. pursuant to Executive Order 13224. To date, no assets related to terrorist entities or individuals have been discovered, frozen or seized.
The GOCI participates in the Intergovernmental Group for Action against Money Laundering (GIABA) based in Dakar, which is the Financial Action Task Force-style regional body (FSRB) for West Africa. GIABA has scheduled a mutual evaluation for Cote d’Ivoire for November 2009. Other than the authority granted to CENTIF by the AML law, the GOCI has neither adopted laws nor promulgated regulations that specifically allow for the exchange of records with the United States on money laundering and terrorist financing.
There are no laws or regulations that specifically permit the allow the exchange of records with United States on money laundering and terrorist financing, other than the authority granted to CENTIF by the AML law. However, Cote d’Ivoire has demonstrated a willingness to cooperate with the United States in investigating financial or other crimes. For example, in a 2007 case, a prominent American government official based in the UK was defrauded by a party based in Cote d’Ivoire who was using the individual’s credit card information to purchase expensive medical equipment and ship it to Cote d’Ivoire. While the perpetrator(s) were not apprehended, Ivorian authorities worked cooperatively with U.S. law enforcement.
Cote d’Ivoire is a party to the UN Convention for the Suppression of the Financing of Terrorism and the 1988 UN Drug Convention. The GOCI has signed, but not yet ratified, the UN Convention against Transnational Organized Crime and the UN Convention against Corruption. Cote d’Ivoire is ranked 151 out of 180 countries in Transparency International’s 2008 Corruption Perceptions Index.
The Government of Cote d’Ivoire should specifically criminalize terrorist financing. The Ministry of Finance should continue to work to build capacity at CENTIF to maximize effectiveness in FIU functions, especially analysis, outreach and information sharing. CENTIF should work toward becoming a member of the Egmont Group. The GOCI’s law enforcement and customs authorities need to implement measures to diminish smuggling, trade-based money laundering, and informal value transfer systems. Authorities should also take steps to halt the spread of corruption that permeates both commerce and government and facilitates the continued growth of the underground economy and money laundering. Cote d’Ivoire should become a party to the UN Convention against Transnational Organized Crime and the UN Convention against Corruption.
Cyprus has been divided since the Turkish military intervention of 1974, following an unsuccessful coup d’etat directed from Greece. Since then, the Republic of Cyprus (ROC) has controlled the southern two-thirds of the country, while a Turkish Cypriot administration calling itself the “Turkish Republic of Northern Cyprus (TRNC)” controls the northern part. Only Turkey recognizes the “TRNC.” The U.S. Government recognizes only the Republic of Cyprus. This report primarily discusses the area controlled by the ROC but also includes a separate section on the area administered by Turkish Cypriots.
Cyprus is a major regional financial center with a robust financial services industry and a significant amount of nonresident businesses. Although Cyprus has made progress from its days as an offshore haven for tax evasion, money laundering and other types of criminal financial activity, Cyprus remains vulnerable to significant money laundering and illicit finance activities. Simple financial crime such as fraud and tax evasion, along with narcotics-trafficking and proceeds from organized crime are the major sources of illicit proceeds laundered in Cyprus.
A number of factors have contributed to the development of Cyprus as a financial center: the island’s central location; a preferential tax regime; double tax treaties with 40 countries (including the United States, several European Union (EU) nations, and former Soviet Union nations); a labor force well trained in legal and accounting skills; a sophisticated telecommunications infrastructure; and EU membership. However, these same factors also make Cyprus attractive to illicit actors seeking access to European markets or desiring to launder criminal proceeds. Cyprus’ historic ties to organized criminal elements and large number of shell companies—which may be used by criminals and proliferators as fronts to facilitate illegal activity—also may attract illicit financiers.
Cyprus currently hosts a total of 44 banks, 17 of which are incorporated locally. The remaining 27 banks are branches of foreign-incorporated banks and conduct their operations mainly with nonresidents. At the end of October 2008, the cumulative assets of all banks are €109 billion (approximately $147,150,000,000). Under the EU’s “single passport” policy, banks licensed by competent authorities in EU countries may establish branches in Cyprus or provide banking services on a cross-border basis without obtaining a license from the Central Bank of Cyprus. By the end of 2008, nine foreign banks were operating branches in Cyprus under this arrangement.
Cyprus hosts seven licensed money transfer companies, 65 investment firms, two management firms handling “undertakings for collective investment in transferable securities” (UCITS), 43 licensed insurance companies, 400 licensed real estate agents, 2,496 registered accountants, 1,820 practicing lawyers, and approximately 118 cooperative credit institutions, controlling about 32 percent of total deposits. Stricter EU requirements on credit institutions have pushed cooperative credit institutions to merge on a large scale since 2004. Their number has declined from 359 to the current 118 in less than four years, and authorities expect this trend to continue.
In recent years, Cyprus has introduced tax and legislative changes effectively abolishing all legal and substantive distinctions between domestic and offshore companies. All Cypriot companies now pay taxes at a uniform rate of 10 percent, irrespective of the permanent residence of their owners or whether they do business internationally or in Cyprus. Cyprus has lifted the prohibition from doing business domestically and companies formerly classified as offshore are now free to engage in business locally. In March 2007, Cyprus withdrew from the Offshore Group of Banking Supervisors. By removing any distinction between resident and nonresident or on-shore and offshore companies, the same disclosure, reporting, tax and other laws and regulations apply equally to all registered companies. Despite these stricter standards, few of the estimated 54,000 nonresident companies established in Cyprus as of 2006 have taken themselves off the company register, and the number of new nonresident companies registering in Cyprus continues to increase as a result of the low tax rate and high service quality. The high number of nonresident businesses raises concern about money laundering due to difficulties in monitoring their activities.
The Prevention and Suppression of Money Laundering Activities Law criminalizes all money laundering; establishes a customer identification requirement and obligations for suspicious transaction reporting; provides for the confiscation of proceeds from serious crimes; and codifies the actions that banks, nonbank financial institutions, and obligated nonfinancial businesses must take. The definition of predicate offense is any criminal offense punishable by a prison term exceeding one year. Money laundering is an autonomous crime in Cyprus. Cypriot AML legislation addresses government corruption, provides for the sharing of assets with other governments, and facilitates the exchange of financial information with other FIUs.
Due diligence and reporting requirements extend to auditors, tax advisors, accountants, and, in certain cases, attorneys, real estate agents, and dealers in precious stones and gems. The Institute of Certified Public Accountants of Cyprus—the designated supervisory authority for auditors and accountants in Cyprus—has publicized strict “know your customer (KYC)” regulations and has outsourced its supervisory oversight function to the UK’s Association of Chartered Certified Accountants). The Cyprus Bar Association, which regulates lawyers, also has strict KYC regulations. Cypriot authorities reportedly have full access to information concerning the beneficial owners of every company registered in Cyprus. This includes companies doing business abroad and companies with foreign beneficial owners and shareholders. However, regulatory oversight of entities such as lawyers and accountants, who are involved in corporate registration and the collection of beneficial ownership information, remains low. This lack of oversight could complicate the ability of authorities to access beneficial ownership information if such information is not collected at the time of registration and can create a permissive environment for beneficial owners of shell companies who may use these firms to conceal illicit activities. The FIU can instruct banks, financial institutions and other obligated entities to delay or prevent execution of customers’ transactions. Casinos and Internet gaming sites are not permitted, although sports betting halls are allowed.
ROC law requires all persons entering or leaving Cyprus to declare all Cypriot or foreign currency and gold bullion worth €12,500 (approximately $16,875) or more. The Central Bank has the authority to revise this amount. On June 15, 2007, EU Directive 1889/2005 went into effect regulating cash movements of currency worth €10,000 (approximately $13,500) or more for travelers entering Cyprus from countries outside the EU.
On December 13, 2007, Cyprus passed legislation entitled “Law for the Prevention and Suppression of Money Laundering Activities,” (LPSMLA) which came into effect on January 1, 2008. This legislation consolidates and supersedes pre-existing legislation. It encompasses all recent recommendations of the Financial Action Task Force (FATF) and the recommendations made by the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a FATF-style regional body (FSRB), at its mutual evaluation in 2006. The LPSMLA provides much stricter administrative fines for noncompliance, i.e., from €5,130 (approximately $6,925) to €200,000 (approximately $270,000), and generally raises Cyprus’ AML standards.
The LPSMLA also addresses enhanced due diligence, extending coverage of “politically-exposed persons” (PEPs), cross-border transactions, and transactions with customers not physically present or acting on behalf of third parties. The law introduces simplified due diligence for certain persons or entities deemed to be low-risk, as well as requirements for the Unit for Combating Money Laundering (MOKAS), the Cypriot FIU, and other supervisory authorities to collect statistical data. MOKAS must provide banks and other obligated entities with feedback in response to any suspicious transaction report (STR) submission.
Article 59 of the LPSMLA specifies the specific supervisory authorities for the various types of financial businesses, as well as other types of business activities. It also strengthens enforcement by expressly stipulating that directives issued by supervisory authorities are binding and obligatory, and by describing the range of possible enforcement measures, including requiring specific remedial action, imposing increased fines, and revoking the license of the supervised person or entity. Articles 61 and 62 describe the method and timeline for applying customer due diligence and identification procedures, while Article 64 refers to enhanced due diligence. Article 70 requires covered entities to notify the FIU before they carry out transactions that they know or suspect to be related to money laundering or terrorist financing. Furthermore, Article 49 provides an exception from the restriction on the disclosure of information, allowing the exchange of information between professionals belonging to the same group of companies.
While the recent AML law addresses many of the previously identified gaps in the Cyprus’ AML/CTF regime, the effectiveness of these measures is unknown, as some provisions have not been fully implemented or tested through the detection, investigation and prosecution of money laundering cases.
Four authorities regulate and supervise financial institutions in Cyprus: the Central Bank of Cyprus, responsible for supervising locally incorporated banks and money transfer businesses; the Cooperative Societies Supervision and Development Authority (CSSDA), supervising cooperative credit institutions; the Superintendent for Insurance Control; and the Cyprus Securities and Exchange Commission (CSEC). Three entities act as regulators for designated nonfinancial businesses and professions (DNFBPs): the Council of the Bar Association supervises attorneys; the Institute of Certified Public Accountants supervises accountants; and the financial intelligence unit (FIU) supervises real estate agents and dealers in precious metals and stones. The supervisory authorities may impose administrative sanctions if the legal entities or persons they supervise fail to meet their obligations as prescribed in Cyprus’ anti-money laundering (AML) laws and regulations.
In recent years the Central Bank has introduced directives aimed at strengthening AML vigilance in the banking sector. Among other requirements, banks must ascertain the identities of the natural persons who are the “principal/ultimate” beneficial owners of all legal entities; adhere to the October 2001 paper of the Basel Committee on Banking Supervision on “Customer Due Diligence for Banks”; and pay special attention to business relationships and transactions involving persons from jurisdictions identified by the FATF as deficient in their AML regime, particularly concerning counterterrorist financing. The definition of beneficial owner under Article 2 (b) of the LPSMLA is “the natural person(s), who is the beneficiary of or exercises control over 10 percent or more of the property of a legal arrangement or entity.”
In April 2008, shortly after passage of the LPSMLA, the Central Bank issued a revised “Directive to Banks for the Prevention of Money Laundering and Terrorist Financing.” Among other provisions, the new Directive assigns responsibility on all levels of bank management, including senior managers, for ensuring compliance and implementation; imposes additional duties on bank compliance officers; and specifies additional high-risk situations.
All banks must report to the Central Bank on a monthly basis individual cash deposits in any currency exceeding €10,000 (approximately $13,500). Bank employees must report all suspicious transactions to the bank’s compliance officer, who determines whether to forward a report to the Cypriot FIU for investigation. Banks retain reports not forwarded to the FIU, which the Central Bank audits as part of its regular on-site examinations. Banks also must file monthly reports with the Central Bank indicating the total number of STRs submitted to the compliance officer and the number forwarded by the compliance officer to the FIU. Bank officials may be held personally liable if their institutions launder money. Cypriot law partially protects reporting individuals with respect to their cooperation with law enforcement but does not clearly absolve a reporting institution or its personnel from complete criminal or civil liability. Banks must retain client identification data, transaction records, and business correspondence for five years.
Central Bank money laundering directives place additional obligations on banks, including requirements on customer acceptance policy and the updating of customers’ identification data and business profiles. Banks must have computerized risk management systems to verify whether a customer is a PEP. They must also provide full details on any customer sending an electronic transfer in excess of €1,000 (approximately $1,350), and have adequate management information systems for on-line monitoring of customers’ accounts and transactions. Cypriot banks typically use electronic risk management systems to target transactions involving high-risk countries, as well as high-risk customers. Since January 1, 2007, Cyprus has been implementing EU Directive 1781/2006 (“Information on the Payer Accompanying Transfers of Funds”), which requires full disclosure of details for electronic fund transfers in excess of €1,000 (approximately $1,350.
The Central Bank also requires compliance officers to file annual reports outlining measures taken to prevent money laundering and to comply with its directives and relevant laws. In addition, the Central Bank has the authority to conduct unannounced inspections of bank compliance records. In July 2002, the U.S. Internal Revenue Service (IRS) officially approved Cyprus’ “know-your-customer” rules, which form the basic part of Cyprus’ AML system. This approval allows banks in Cyprus that acquire United States securities on behalf of their customers to enter into a “withholding agreement” with the IRS and become qualified intermediaries.
A draft law, expected to pass in early 2009, will regulate trust and company service providers (other than accountants and lawyers), bringing them under the supervisory authority of the Central Bank. As soon as this law goes into effect, the supervisory authorities will issue revised directives.
In October 2006, the IMF released a detailed assessment of the “Observance of Standards and Codes for Banking Supervision, Insurance Supervision and Securities Regulation.” The report notes that the CSEC is legally unable to cooperate with foreign regulators if the CSEC does not have a direct interest, and that the CSEC has difficulty obtaining information regarding the beneficial owners of Cypriot-registered companies. The CSEC drafted amending legislation to resolve these issues, expected to pass in 2008, but now anticipated in early 2009. In the meantime, an amendment to the Market Abuse Law, passed in late 2007, enables the CSEC to share information with other competent authorities, as necessary. The IMF report also notes that commitments emerging from EU accession had “placed stress on the skills and resources” of the staff of the CSSDA and of the Insurance Superintendent.
The Prevention and Suppression of Money Laundering Activities Law mandates the establishment of MOKAS, the Cypriot FIU, and authorizes criminal (but not civil) seizure and forfeiture of assets. MOKAS is responsible for receiving and analyzing STRs and for conducting money laundering investigations. A representative of the Attorney General’s Office heads the unit. All banks and nonbank financial institutions, insurance companies, the stock exchange, cooperative banks, lawyers, accountants, and other financial intermediaries must report suspicious transactions to MOKAS. Sustained efforts by the Central Bank and MOKAS to strengthen reporting have resulted in a significant increase in the number of filed STRs. Between January 1 and December 18, 2008, MOKAS received 242 STRs. In the same interval, MOKAS received 321 information requests from foreign FIUs, other foreign authorities, and INTERPOL. MOKAS cooperates closely with the U.S. in money laundering investigations.
MOKAS evaluates evidence generated by its member agencies and other sources to determine whether an investigation is necessary. MOKAS has the power to administratively suspend financial transactions for an unspecified period of time. MOKAS also has the power to apply for freezing or restraint orders affecting any kind of property at a preliminary stage of an investigation. MOKAS has issued several warning notices, based on its own analysis, identifying possible trends in criminal financial activity. These notices have resulted in the closure of dormant bank accounts. MOKAS conducts AML training for Cypriot police officers, bankers, accountants, and other financial professionals.
During the interval from January 1 through December 18, 2008, MOKAS opened 563 cases and closed 195. Since 2000, there have been 20 prosecutions for money laundering, seven of which took place in 2008. Of the 20 prosecutions, 11 have resulted in convictions. In 2008, MOKAS issued three confiscation orders for a total of approximately €70,000 (approximately $94,500). A number of other cases are pending. Despite the size of the financial sector and the seemingly comprehensive nature of the AML/CTF legislative regime, the number of reports, investigations and convictions of money laundering cases in Cyprus remains surprisingly low. Furthermore, suspicious transaction reporting from the nonfinancial sector, including lawyers and accountants, also remains low.
Sections four and eight of Ratification Law 29 (III) of 2001 criminalize terrorist financing. The implementing legislation amends the AML law to criminalize the collection of funds in the knowledge that they would be used by terrorists or terrorist groups for violent acts. The parliament passed an amendment to the implementing legislation in July 2005 eliminating a loophole that had inadvertently excused Cypriot nationals operating in Cyprus from prosecution for terrorist finance offenses. The LPSMLA criminalizes the general collection of funds with the knowledge that terrorists or terrorist groups would use them for any purpose (i.e., not just for violent acts); and explicitly covers terrorist finance (although already considered a predicate offense under existing legislation). MOKAS routinely asks banks to check their records for any transactions by any person or organization designated by foreign FIUs or the U.S. Treasury Department as a terrorist or terrorist organization.
Under a standing instruction, the Central Bank automatically issues a “search and freeze” order for accounts matching the name of any entity or group designated as a terrorist or terrorist organization by the UN 1267 Sanctions Committee or the EU 931Working Party, which replaced the previous informal EU “clearinghouse” with more formal mechanisms. If a financial institution finds matching accounts, it will immediately freeze the accounts and inform the Central Bank. As of November 2008, no bank has reported holding a matching account. When FIUs or governments—not the UN or the EU 931 Working Party—designate and circulate the names of suspected terrorists, MOKAS has the authority to block funds and contact commercial banks directly to investigate. To date, none of these checks have revealed anything suspicious. The lawyers’ and accountants’ associations cooperate closely with MOKAS and the Central Bank. Cyprus cooperates with the United States to investigate terrorist financing. MOKAS reports no terrorist assets have been found in Cyprus to date and thus there have been no terrorist financing prosecutions or freezing of terrorist assets. In 2006, there was one investigation for terrorist financing involving four persons.
Cyprus believes that its existing legal structure is adequate to address money laundering through alternative remittance systems such as hawala. Cypriot authorities maintain there is no evidence that alternative remittance systems such as hawala operate in Cyprus. Cyprus licenses charitable organizations, which must submit copies of their organizing documents and annual statements of account to the government. The majority of charities registered in Cyprus are reportedly domestic organizations.
Cyprus is a party to the 1988 UN Drug Convention, the UN Convention for the Suppression of the Financing of Terrorism, and the UN Convention against Transnational Organized Crime. Cyprus has signed, but not yet ratified, the UN Convention against Corruption. Cyprus is a member of MONEYVAL. MOKAS is a member of the Egmont Group and has signed memoranda of understanding (MOUs) with 17 FIUs, although Cypriot law allows MOKAS to share information with other FIUs without benefit of an MOU. A mutual legal assistance treaty between Cyprus and the United States entered into force September 18, 2002.
The Government of Cyprus has put in place a comprehensive anti-money laundering/counterterrorist financing regime, which it continues to upgrade. Cyprus should ensure not only the passage, but also the full implementation, of the two laws that will regulate trusts and company service providers, and provide the CSEC with the ability to obtain necessary information and share information both domestically and internationally. The GOC should provide a clear safe harbor to individuals who cooperate with law enforcement. Cyprus should provide adequate resources and capacity to the CSSDA and the Insurance Superintendent. Cyprus should also increase regulatory oversight of designated nonfinancial businesses and professions (DNFBPs) including lawyers and accountants. The ROC should ensure it is able to implement the law criminalizing the collection of funds with the knowledge they will be used by terrorists or terrorist groups for any purpose, not only to commit terrorist or violent acts. Cyprus should consider enacting provisions that allow for civil forfeiture of assets. Cyprus should ratify the UN Convention against Corruption.
Area Administered by Turkish Cypriots
The Turkish Cypriot community continues to lack the legal and institutional framework necessary to provide effective protection against the risks of money laundering, although significant progress has been made over the last year. There are currently 24 domestic banks in the area administered by Turkish Cypriots and Internet banking is available. The offshore sector consists of 14 banks and 34 companies. The offshore banks may not conduct business with residents of the area administered by Turkish Cypriots and may not deal in cash. The “Central Bank” audits the offshore entities, which must submit an annual report on their activities. Under revised laws passed in 2008, the “Central Bank” took over the regulation and licensing of offshore banks from the “Ministry of Finance.” The new law permits only banks previously licensed by Organization for Economic Co-operation and Development (OECD)-member nations or having “friendly relations” with “TRNC” to operate an offshore branch in northern Cyprus.
It is thought the 23 essentially unregulated and primarily Turkish-mainland owned casinos and the 14 offshore banks are the primary vehicles through which money laundering occurs. Casino licenses are fairly easy to obtain, and background checks on applicants are minimal. A significant portion of the funds generated by these casinos reportedly changes hands in Turkey without ever entering the Turkish Cypriot banking system, and there are few safeguards to prevent the large-scale transfer of cash to Turkey. Recent years have seen a large increase in the number of sport betting halls, which are licensed by the “Office of the Prime Minister.” There are currently five companies operating in this sector, with approximately 30 outlets. Four of the companies also accept bets over the Internet. Turkish Cypriot authorities deported one prominent Turkish organized crime figure, Yasar Oz, following a December 19, 2006 shootout at the Grand Ruby Casino that left two dead. As a result of this incident, the Turkish Cypriot authorities arrested seven individuals, closed the Grand Ruby and Denizkizi Casinos and deported much of their staffs. Nevertheless, several other casinos are still believed to have significant links to organized crime groups in Turkey. Casinos fall under the purview of the AML law passed in 2008. A draft law, expected to be passed in January 2009, is designed to tighten the licensing and regulation of casinos.
Another area of concern is the approximately five hundred “finance institutions” that extend credit and give loans. Although they must register with the “Office of the Registrar of Companies,” they remain unregulated. Some of these companies are owned by banks and others by auto dealers.
The fact that the “TRNC” is recognized only by Turkey limits the ability of Turkish Cypriot authorities to receive training or funding from international organizations with experience in combating money laundering. The Turkish Cypriot community is not part of any FSRB and thus is not subject to normal peer evaluations. In 2007, FATF conducted an informal review and found numerous shortcomings in AML laws and regulations as well as insufficient resources devoted to the effort. Turkish Cypriot officials objected to the conclusions. After including the northern part of Cyprus as an area of concern for money laundering in February 2008, FATF found “significant progress” had been made by its October 2008 meeting.
The offshore banking sector remains a concern. In August 2004, the U.S. Department of the Treasury’s FinCEN, pursuant to Section 311 of the USA PATRIOT Act, found First Merchant Bank to be of primary money laundering concern based on a number of factors. These factors include that the bank is licensed as an offshore bank in a jurisdiction with inadequate AML controls, particularly those applicable to its offshore sector; and it is involved in the marketing and sale of fraudulent financial products and services. Other factors point to its use as a conduit for the laundering of fraudulently obtained funds and its apparent use to launder criminal proceeds by individuals with links to organized crime who own, control, and operate First Merchant Bank. In December 2006, the Turkish Cypriot administration ordered First Merchant Bank to cease its operations due to violations of the Turkish Cypriot “Offshore Banking Law.” The bank is now only permitted to perform activities associated with closing the bank such as the payment and collection of outstanding debts.
Turkish Cypriot authorities have begun taking steps to address the risk of financial crime, including enacting an anti-money laundering law (“AMLL”) for the area. The law aims to reduce the number of cash transactions in the area administered by Turkish Cypriots as well as improve the tracking of any transactions above €10,000 (approximately $13,500). Under the “AMLL,” banks must report to the “Central Bank” and the “Money and Exchange Bureau” any electronic transfers of funds in excess of $100,000. Such reports must include information identifying the person transferring the money, the source of the money, and its destination. Under the new law, banks, nonbank financial institutions, and foreign exchange dealers must report all currency transactions over €10,000 (approximately $13,500) and suspicious transactions in any amount to the “Money and Exchange Bureau” which deals with AML at the “Ministry of Finance.” Banks must follow a know-your-customer policy and require customer identification. Banks also must submit STRs to a five-member “Anti-Money Laundering Committee (AMLC)” which decides whether to refer suspicious cases to the “police” and the “attorney general’s office” for further investigation. The five-member committee is composed of representatives of the “police,” “customs,” the “Central Bank,” and the “Ministry of Finance.”
In 2005, the “AMLC,” which had been largely dormant for several years, began meeting on a regular basis and encouraging banks to meet their obligations to file STRs. The committee has referred several cases of possible money laundering to law enforcement for further investigation, but no cases have been brought to court and no individuals have been charged. There have been no successful prosecutions of individuals for money laundering, although one foreign bank owner suspected of having ties to organized crime was successfully extradited. There are significant concerns that law enforcement and judicial authorities lack the technical skills needed to investigate and prosecute financial crimes. The “AMLC” also complains that since foreign jurisdictions will not cooperate with it by providing evidence or appearing to testify, the authorities have difficulty presenting cases to their court system.
The “AMLL” requires individuals entering the area administered by Turkish Cypriots to declare cash over $10,000 and prohibits individuals leaving the area administered by Turkish Cypriots from transporting more than $10,000 in currency. However, “Central Bank” officials note that this law is difficult to enforce. This is particularly true given the large volume of travelers to and from Turkey, especially since Turkish Cypriot authorities relaxed restrictions that limited travel across the UN-patrolled buffer zone. There is also a relatively large British population in the area administered by Turkish Cypriots and a significant number of British tourists. As a result, an informal currency exchange market has developed.
The Turkish Cypriot “AMLL” provides better banking regulations than were in force previously, but as an AML tool it is far from adequate, and without ongoing enforcement, cannot meet its objectives. A major weakness continues to be the many casinos, where a lack of resources and expertise leave the area essentially unregulated and therefore especially vulnerable to money laundering abuse. The largely unregulated finance institutions, currency exchange houses, and offshore banking sector are also of concern. The Turkish Cypriot authorities should move quickly to establish a strong, functioning “financial intelligence unit,” and adopt and implement a strong licensing and regulatory environment for all obligated institutions, in particular casinos, money exchange houses, and entities in the offshore sector. Turkish Cypriot authorities should stringently enforce the cross-border currency declaration requirements. Turkish Cypriot authorities should take steps to enhance the expertise of members of the enforcement, regulatory, and financial communities with an objective of better regulatory guidance, more efficient STR reporting, better analysis of reports, and enhanced use of legal tools available for prosecutions.
The Czech Republic is one of the most stable and prosperous of the post-Communist states of Central and Eastern Europe. However, the Czech Republic’s central location in Europe and its relatively new status as a functional market economy have left it vulnerable to money laundering. While various forms of organized crime (narcotics-trafficking, trafficking in persons, fraud, counterfeit goods, embezzlement, and smuggling) remain the primary sources of laundered assets in the country, Czech officials and media outlets voice concern about the ability of extremist groups and terrorists to launder or remit money within the country. Domestic and foreign organized crime groups target Czech financial institutions for laundering activity, most commonly by means of financial transfers through the Czech Republic. Banks, casinos and other gaming establishments, investment companies, and real estate agencies have all been used to launder criminal proceeds. Currency exchanges in the capital and border regions are also considered to be a problem. For many years, the Czech Republic was a transfer country in the international illegal animal trade. In recent years, authorities have reported an increase in cases of animal smuggling and believe the Czech Republic is becoming a target for such activity. In the Czech Republic, animals reportedly come third on the list of smuggled goods after drugs and weapons. Last year, the authorities confiscated altogether 151 animals, mainly tortoises, songbirds and parrots.
The growth of the Czech Republic economy between 2000 and 2008 was supported by exports to the European Union (EU). However, despite the progressive development of modern payment techniques, the economy is still heavily cashed-based. Major sources of criminal proceeds include criminal offenses against property, insurance fraud, and credit fraud. Insurance fraud in the Czech Republic rose by 50 percent in the first quarter of 2008. The Czech Association of Insurance Companies (CAIC) says that one in five insurance claims is fraudulent. The most common type of fraud concerns car insurance and property damage claims. Connections between organized crime and money laundering have been observed mainly in relation to activities of foreign groups, in particular from the former Soviet republics, the Balkan region, and Asia. Criminal groups operating in the Czech Republic are mostly of foreign origin. They often enter the country by first opening various front companies, then receiving residency permits for employment in their own companies. Alternatively, immigrants often start business companies, which in many cases create the base for illegal migration, which subsequently creates a personnel base for criminal organizations. The Czech Republic is also vulnerable to other illicit financial activities conducted through credit and loan services, money remittances (particularly in connection with the Asian community), and illegal foreign exchange business.
The Government of the Czech Republic (GOCR) first criminalizes money laundering in September 1995 through additions to its Criminal Code. Although the Criminal Code does not explicitly mention money laundering, its provisions apply to financial transactions involving the proceeds of all serious crimes. A July 2002 amendment to the Criminal Code introduces a new independent offense called “Legalization of Proceeds from Crime.” This offense has a wider scope than previous provisions and enables prosecution for laundering one’s own illegal proceeds (as opposed to those of other parties). The 2002 amendment also stipulates punishments of five to eight years imprisonment for the legalization of proceeds from all serious criminal activity and calls for the forfeiture of assets associated with money laundering. Section 252a, “Legalization of Proceeds from Criminal Activity,” of the Criminal Code criminalizes money laundering.
The Czech anti-money laundering legislation became effective in July 1996. The Anti-Money Laundering (AML) Act (Act No. 61/1996, Measures Against Legalization of Proceeds from Criminal Activity) provides the general preventive AML framework. It has been amended eleven times. The latest amendment, Act No. 253/2008 came into force September 1, 2008. Act No. 253/2008 requires customers to verify their identities for all transactions exceeding 1,000 euros (approximately $1,400). The previous limit was 15,000 euros (approximately $21,000). For transactions above 15,000 euros (approximately $21,000), customers are required to provide more extensive information that includes details of the purpose and nature of the intended transaction. The new law also calls for more stringent controls of financial transactions involving politically exposed persons (PEPs) and their immediate family members. The law now requires a wide range of financial institutions, as well as attorneys, casinos, realtors, notaries, accountants, tax auditors, and entrepreneurs engaging in financial transactions, to report all suspicious transactions to the Ministry of Finance’s financial intelligence unit (FIU), known as the Financial Analytical Unit (FAU). The institutions must all keep internal records of all transactions exceeding 1,000 euros (approximately $1,400). Although, in general, the customer identification procedures are mostly in place, full customer due diligence (CDD) requirements should be introduced in the AML Act with appropriate guidance.
The Czech Republic still has more than 2.6 million anonymous deposit passbooks containing 3.9 billion crowns (approximately $200,000,000). Due to ongoing criticism, the Czech Republic introduced legislation in 2000 prohibiting new anonymous passbook accounts. In 2002, the Act on Banks was amended to abolish all existing bearer passbooks by December 31, 2002. In principle, bearer passbooks will be completely phased out by 2012. While account holders can still withdraw money from the accounts for another few years, the accounts do not earn interest and cannot accept deposits. In 2007, approximately 350 million crowns (approximately $18,000,000) were withdrawn from these accounts.
Czech authorities require that financial institutions maintain transaction records for a period of ten years. Reporting requirements also apply to persons or entities seeking to enter the Czech Republic. Under the provisions of the AML Act, anyone entering or leaving the Czech Republic with more than 10,000 euros (approximately $14,000) in cash, traveler’s checks, or other monetary instruments must make a declaration to customs officials, who are required to forward the information to the FAU. Similar reporting requirements apply to anyone seeking to mail the same amount in cash to or from the country. In practice, the effectiveness of these procedures is difficult to assess. As a result of the Czech Republic’s December 2007 entry into the Schengen zone, all passport and customs stations on the borders are closed. Although the customs station at the Prague Airport remains operational, detecting the smuggling or transport of large sums of currency by train or highway is difficult.
The FAU was established in July 1996 as an administrative FIU under the umbrella of the Ministry of Finance. It has overall supervisory competence to ensure the implementation of the AML Act by all obliged entities. Since 1996, financial institutions have been required to report all suspicious transactions to the FAU. The FAU is authorized to cooperate with the Czech Intelligence Service (BIS) and Czech National Security Bureau (NBU) in addition to its ongoing cooperation with the Czech Police, Customs, and counterpart FIUs abroad.
The FAU is charged with reviewing cash transaction reports (CTRs) and suspicious transaction reports (STRs) filed by police agencies, financial, and other institutions. It is also charged with uncovering cases of tax evasion, a widespread problem in the Czech Republic. The FAU has neither the mandate nor the capacity to initiate or conduct criminal investigations. The FAU’s work covers only a relatively small segment of total financial activity within the Czech Republic. Since April 2006, the FAU has had the power to fine financial institutions that fail to report accounts or other assets belonging to individuals, organizations, or countries on which international sanctions have been imposed.
The number of STRs transmitted to the FAU decreased in 2007 after several years of rapid growth. There were 3,404 suspicious transactions reported in 2005, 3,480 in 2006, but only 2,048 in 2007. During the first five months of 2008, the FAU received 1,722 STRs. The number of inquiries evaluated and forwarded to law enforcement bodies also has decreased. In 2005, the FAU forwarded 208 reports to the police, 137 in 2006 and only 102 in 2007. During the first five months of 2008, the FAU forwarded 67 reports to the police.
Investigative responsibilities remain with the Czech National Police Unit for Combating Corruption and Financial Crimes (UOKFK) or other Czech National Police bodies. The UOKFK has primary responsibility for all financial crime, corruption and terrorist financing cases. Following the dissolution of the specialized Financial Police on January 1, 2007, the unit became the main law enforcement counterpart to the FAU. Following the abolition of the Financial Police, the UOKFK took over all of its ongoing cases, but the pace of investigations has slowed. The abolition of the Financial Police and the transfer of its cases to the UOKFK caused temporary difficulties in communication between the FAU and the Police. It is not clear whether every case transferred to law enforcement was investigated.
The Czech Republic saw its first convictions of individuals attempting to legalize proceeds from crime in 2004. In 2005, there were 23 alleged offenders prosecuted and three were convicted. In 2006, 33 were prosecuted, and five were convicted. In 2007, the Police investigated 32 cases, 13 of which are being prosecuted. As of November 2008, no data is available regarding the number of convictions. In the past, sentences have been low and generally consisted of suspended sentences or fines. A new Penal Code is likely to come into effect in 2009 and is expected to significantly increase penalties for financial crimes, including money laundering. An ongoing issue in criminal prosecutions is that law enforcement agencies must prove the assets in question were derived from criminal activity. The accused is not obligated to prove the property or assets were acquired legitimately.
While the institutional capacity to detect, investigate, and prosecute money laundering and financial offenses has increased in recent years, both the FAU and the police face staffing challenges. The Financial Action Task Force (FATF) and the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a FATF-style regional body, have both emphasized the need for the Czech Republic to increase the FAU’s staff. Despite numerous requests by the FAU for an increase in staffing, to date, the GOCR has not yet approved the FAU’s request. Given the scope of its responsibilities, the FAU remains a relatively small organization. The police face even bigger challenges due to recent changes in police retirement rules and the perceived lack of political support for independent police work. Many senior and experienced police officers are reportedly leaving or are considering early retirement. These departures will affect not only the UOKFK, but the Organized Crime Unit and other critical police organizations as well. The dissolution of the Financial Police, which was created in 2004 and had a good track record of investigating and prosecuting money laundering and terrorist financing cases, has also had a negative impact on police work on financial crimes.
The Law on Implementation of International Sanctions that came into force in April 2006 also represents progress by the GOCR. Under this law, the Ministry of Finance has the authority to fine institutions for failure to report accounts or other assets belonging to individuals, organizations, or countries on which international sanctions have been imposed, or those not fulfilling other obligations set by international regulations. Earlier laws restricting financial cooperation with the Taliban (2000) and Iraq (2005) were replaced by the Law on Implementation of International Sanctions.
Czech laws facilitate the seizure and forfeiture of bank accounts. A financial institution that reports a suspicious transaction has the authority to freeze the suspect account for up to 24 hours. However, for investigative purposes, this time limit can be extended to give the FAU sufficient time to investigate whether there is evidence of criminal activity. Currently, the FAU is authorized to freeze accounts for 72 hours. If sufficient evidence of criminal activity exists, the case is forwarded to UOKFK, which has another three days to gather the necessary evidence. If the UOKFK is able to gather enough evidence to start prosecution procedures, then the account can stay frozen for the duration of the investigation and prosecution. If, within the 72-hour time limit, the UOKFK fails to gather sufficient evidence to convince a judge to begin prosecution, the frozen funds must be released. These time limits do not apply to accounts owned by suspected terrorists and terrorist organizations, or by other individuals and organizations covered under the Law on Implementation of International Sanctions.
Although Czech law authorizes officials to use asset forfeiture, it is still not widely used. It was introduced into the criminal system in 2002 and allows judges, prosecutors, or the police (with the prosecutor’s consent) to freeze an account or assets if evidence indicates the contents were used or will be used to commit a crime, or if the contents are proceeds of criminal activity. In urgent cases, the police can freeze the account without the previous consent of the prosecutor, but within 48 hours must inform the prosecutor, who then confirms the freeze or releases the funds. An amendment to the 2004 Law on the Administration of Asset Forfeiture in Criminal Procedure implements provisions and responsibilities addressing the administration and storage of seized property and appoints the police as administrators of seized assets.
A 2006 amendment to the Czech Criminal Procedure Code and Penal Code brings several positive changes to the asset forfeiture and seizure law. The law, as amended, now allows for the freezing and confiscation of the value of any asset (including immovable assets) and is not limited to property. These provisions allow the police and prosecutors to seize assets gained in illicit activity previously shielded by family members. The law allows for the seizure of substitute assets as well as equivalent assets not belonging to the criminal.
The National Drug Headquarters (NDH) cooperates with the UOKFK on drug-related cases. However, as a result of the abolition of the Financial Police the NDH conducts its basic financial investigations alone and, if needed, contacts the UOKFK. In 2007, the NDH confiscated the equivalent of approximately $165,000 in euros and CZK, and other assets worth CZK 1.92 million (approximately $106,700). For the first ten months of 2008, the figures are approximately $161,888 in CZK and euros, and other assets valued at CZK 1.72 million (approximately $95,556).
In November 2004, the Czech Government amended the Criminal Code and enacted new definitions for terrorist attacks and terrorist financing. The amendments impose a penalty of up to 15 years’ imprisonment on those who support terrorists financially, materially, or by other means. On November 11, 2008, the lower house of the Czech Parliament passed a new penal code that will tighten the penalties for financing terrorism from the present 8-15 years to 12-20 years imprisonment. The code, however, must still be passed by the Senate and signed by the President before it can go into effect. In addition to reporting all suspicious transactions possibly linked to money laundering, concerned institutions are now required to report all transactions suspected of being tied to terrorist financing. An amendment to the AML law in 2000 requires financial institutions to freeze assets that belong to suspected terrorists and terrorist organizations on the UN 1267 Sanctions Committee consolidated list.
The GOCR adopted the National Action Plan for the Fight Against Terrorism for 2005-2007, subsequently updated for 2007-2009. This document covers topics such as police work and cooperation, protection of security interests, enhancement of security standards, and customs issues. The fight against terrorist financing is one of the major priorities contained in the plan.
Although the terrorist financing threat in the Czech Republic is considered to be modest, some law enforcement officials believe the presence of third-country remuneration networks operating in the country (“hawala” shops) could translate into a greater possibility of terrorist financing activities. The Czech Republic has specific laws criminalizing terrorist financing and legislation permitting rapid implementation of UN and EU financial sanctions, including action against accounts held by suspected terrorists or terrorist organizations. An informal interagency body called the Clearinghouse was established in 2002 under the FAU to streamline the collection of information from institutions and enhance cooperation and response to a terrorist threat. The Clearinghouse meets only in cases of necessity. The FAU is currently distributing lists of designated terrorists to relevant financial and governmental bodies. Czech authorities have been cooperative in the global effort to identify suspect terrorist accounts, and adoption of the Law on Implementation of International Sanctions has made their work easier. Several cases have been detected, and payments to suspected organizations were not permitted. In two cases sanctions had been imposed.
The Czech Republic has signed memoranda of understanding on information exchange with 23 countries, the most recent being Paraguay. The Czech Republic formalized an agreement with Europol in 2002. The FAU has been a member of the Egmont Group since 1997 and is authorized to cooperate and share information with all of its international counterparts, including those that are not part of the Egmont Group. Cooperation with foreign counterparts remains good. In 2005, the FAU received 130 assistance requests from foreign counterparts and sent 69 requests abroad. In 2006, it received 128 requests and sent out 77. In 2007, the FAU received 133 requests and sent out 66.
The Czech Republic participates in MONEYVAL. The most recent mutual evaluation of the Czech Republic was conducted by MONEVAL in 2005. The mutual evaluation report was adopted by MONEYVAL at its plenary meeting in September 2007. The Czech Republic is a party to the 1988 UN Drug Convention and the UN Convention for the Suppression of the Financing of Terrorism. It has signed, but not yet ratified, the UN Convention against Transnational Organized Crime and the UN Convention against Corruption.
The United States and the Czech Republic have a Mutual Legal Assistance Treaty (MLAT), which entered into force on May 7, 2000. In May 2006, the United States and the Czech Republic signed a supplemental MLAT, which was ratified in 2007, but has not yet come into force.
The Government of the Czech Republic has made progress in its efforts to strengthen its anti-money laundering regime. However, the GOCR should strengthen its incomplete legal framework on seizure and confiscation and take steps to resolve its FIU and police resource problems. The GOCR also should increase staffing and resources for the FAU and national police so these agencies can effectively implement and enforce the anti-money laundering/counterterrorist financing measures under their charge. To successfully implement its risk-based approach, the GOCR must adopt and put in place a comprehensive CDD program and ensure that all obligated entities have the capacity and guidance to apply it. The GOCR also should ratify the UN Convention against Transnational Organized Crime and UN Convention against Corruption.
As a major transit country for drug trafficking, the Dominican Republic remains vulnerable to money laundering. Financial institutions in the Dominican Republic engage in currency transactions involving international narcotics trafficking proceeds that include significant amounts of U.S. currency or currency derived from illegal drug sales in the United States. The smuggling of bulk cash by couriers and the use of wire transfer remittances are the primary methods for moving illicit funds from the United States into the Dominican Republic. Once in the Dominican Republic, currency exchange houses, money remittance companies, real estate and construction companies, and casinos facilitate the laundering of these illicit funds. The lack of a viable financial intelligence unit and the proposed creation of an offshore financial center exacerbate the Dominican Republic’s vulnerability to money laundering.
Money laundering in the Dominican Republic is criminalized under Act 17 of 1995 (the 1995 Narcotics Law) and Law No. 72-02 of 2002. Under these laws, the predicate offenses for money laundering include illegal drug activity, trafficking in human beings or human organs, arms trafficking, kidnapping, extortion related to recordings and electronic tapes, theft of vehicles, counterfeiting of currency, fraud against the state, embezzlement, and extortion and bribery related to drug trafficking. Law 183-02 also imposes financial penalties on institutions that engage in money laundering, and the Government of the Dominican Republic (GODR) is in the process of amending the law to add a parallel structure of criminal penalties.
The 1995 Narcotics Law allows preventive seizures and criminal forfeiture of drug-related assets, and authorizes international cooperation in forfeiture cases. Law No. 78-03 permits the seizure, conservation and administration of assets that are the product or instrument of criminal acts pending judgment and sentencing. However, there is a lack of regulations to implement the legislation that led to ineffective asset inventory and management. There is a pending amendment to Law No. 78-03 recently introduced by the GODR Attorney General’s office. If approved, this amendment will greatly improve the administration of seized, confiscated, or abandoned properties and will also significantly reduce the time period that seized property must be held prior to forfeiture. Assets Laundering Law 72-02 applies to seized assets. While narcotics-related investigations have been initiated under the 1995 Narcotics Law, and substantial currency and other assets have been confiscated, there have been only four successful money laundering prosecutions under this law. None were reported for 2008.
Under Law No. 72-02 and Decree No. 288-1996, numerous financial and nonfinancial institutions are subject to anti-money laundering provisions. Obligated entities include banks, currency exchange houses, stockbrokers, securities brokers, the Central Bank, cashers of checks or other types of negotiable instruments, issuers/sellers/cashers of travelers checks or money orders, credit and debit card companies, remittance companies, offshore financial service providers, casinos, real estate agents, automobile dealerships, insurance companies, and certain commercial entities such as those dealing in firearms, metals, archeological artifacts, jewelry, boats, and airplanes. The law mandates that these entities must report suspicious transactions as well as all currency transactions exceeding $10,000, and maintain records for a minimum of five years. Moreover, the legislation requires individuals to declare cross-border movements of currency that are equal to or greater than the equivalent of $10,000 in domestic or foreign currency.
In August 2006, the Dominican Republic Attorney General created the Money Laundering Unit to actively pursue financial crimes and money laundering investigations to aid in prosecutors’ ability to obtain money laundering convictions. Since 2006, there have been 25 investigations and seven cases brought to court, one of which is the Banco Intercontinental (BANINTER) case.
The 2003 collapse of BANINTER revealed 14 years of double-bookkeeping designed to hide “sweetheart” loans, embezzlement, and money laundering. Subsequent state reimbursement of depositors resulted in costs of approximately $2.3 billion. With the fraud-based collapse of Banco Mercantil and Banco Nacional de Credito (BANCREDITO) that same year, total bank fraud-based losses to the Dominican government approached $3 billion in 2003. These frauds gutted the Dominican economy, almost tripled national indebtedness, and caused a massive devaluation of the Dominican peso. The GODR negotiated an International Monetary Fund (IMF) standby loan in August 2003 to help cover the costs of the failures. The IMF insisted on extensive changes in laws and procedures to improve banking supervision. Though legislative changes have been made, full implementation of IMF requirements lags.
In the BANINTER case, the bank’s president and vice- president were convicted and sentenced for violations of banking and monetary laws, although both were acquitted of money laundering. A Dominican economist and entrepreneur, a U.S. citizen, was convicted of criminal money laundering in connection with the collapse and sentenced to ten years in prison. In November 2008, the Dominican Supreme Court upheld the convictions in the BANCREDITO case, although none of the convictions were for money laundering. While these convictions were criticized by civil society, the media, and jurists as internally inconsistent, reportedly, they nevertheless serve as a significant challenge to impunity for the country’s elite.
In 1997, the Dominican Republic established the Unidad de Inteligencia Financiera (UIF) as the country’s financial intelligence unit (FIU) with the responsibility of receiving financial disclosures and suspicious transaction reports (STRs) from reporting entities in the financial sector. In 2002, Law 72-02 created the Unidad de Análisis Financiero (Financial Analysis Unit, or UAF) that reports to the National Anti-Money Laundering Committee, and has the mandate to receive financial disclosures and STRs from both financial and nonfinancial reporting entities, as well as present leads to the prosecutors’ office. According to the GODR, the UAF, which became operational in 2005, has replaced the UIF as the FIU of the Dominican Republic. As a result, the UIF, which became a member of the Egmont Group in 2000, lost its membership in November 2006 as it is no longer the legally recognized FIU of the Dominican Republic. The UAF anticipates applying for Egmont membership once a full transition of FIU functions and responsibilities are complete, projected to occur by the end of the summer in 2009. Although the UAF is now recognized as the GODR’s financial intelligence unit, it appears that there is still confusion among obligated entities regarding their reporting requirements. In 2007, rather than reporting directly to the UAF, reporting entities filed 824 STRs with the UIF. The UIF then reported the STRs to the UAF. The majority of the reports the UAF received in 2007 are thought to have been transferred from the UIF.
Further confounding the duality of FIU functions in the Dominican Republic is the proposed creation of an offshore financial center with its own agency equivalent to an FIU. In December 2008, legislation was passed by the Dominican Congress to allow for the creation of an Independent Financial Center of the Americas (IFCA), which would not be subject to the regulatory authority of GODR banking supervisors. Among the financial services proposed to be available will be businesses and investment banking, public and private brokerage, trading of titles and commercial paper, money and asset management. To reassure international concerns regarding the IFCA’s susceptibility to abuse by money launderers and terrorist financiers, as well as the GODR’s inability to ensure that the IFCA complies with anti-money laundering and counterterrorist financing standards, the creators of the IFCA have proposed establishing their own FIU to report to the UAF and exchange information with other FIUs. However, an FIU must by definition be a single, national entity. Although the creators proposed changing the name of the IFCA’s FIU equivalent agency to avoid confusion, it would still serve as a filter for STRs that should be sent to the UAF, which is not permissible under the international standards of the Egmont Group and Financial Action Task Force.
In August 2008, the Government of the Dominican Republic (GODR) criminalized terrorist financing with the enactment of the Anti-Terrorism Law. The GODR continues to support U.S. Government efforts to identify and block terrorist-related funds. While no assets have been identified or frozen, the GODR ‘s efforts to identify and block terrorist-related funds continue through orders and circulars issued by the Ministry of Finance and the Superintendence of Banks that instruct all financial institutions to continually monitor accounts.
According to U.S. law enforcement officials, cooperation between law enforcement agencies on drug cases, human trafficking, and extradition matters remains strong. In 2008, GODR and U.S. law enforcement continued to work together to intercept and disrupt bulk cash smuggling organizations operating in the airports and seaports of the Dominican Republic. Law enforcement in the Dominican Republic continues targeting commercial flights and vessels that operate to drug source countries to disrupt the illicit money flow back to narcotics traffickers. In view of the recent increase in asset forfeiture cooperation with the U.S., the Dominican Republic has requested that the U.S. enter into an Asset Sharing Agreement to better streamline future sharing efforts.
In July 2008, the National Drugs Control Agency (DNCD) raided exchange businesses used by a Dominican-Colombian drug ring that laundered millions of dollars through “Operation Pitufo” (Smurf). The DNCD and the U.S. Drug Enforcement Administration (DEA) exchanged information to identify others implicated in the money-laundering organization.
In June 2008, the Dominican Republic made a substantial asset seizure relating to a Medicare fraud prosecution in the Southern District of Florida involving a large amount of assets purchased by Luis, Carlos, and Jose Benitez (the Benitez Brothers) brothers. Of the $110 million dollars in fraudulent funds obtained, over $30 million were invested in assets in the Dominican Republic. Assets included a hotel, water park, houses, helicopter, seafront apartments, and automobiles. The Government of the Dominican Republic’s (GODR) Prosecutor General’s office assisted the Federal Bureau of Investigation agents in conducting the seizures. This is an on-going case at this time, and the United States anticipates taking over the forfeiture through litigation in Miami, Florida. The two countries are working closely together to discover additional assets in this, and other fraud cases, so that restitution may be made to victims of the fraud in the United States. The United States generally shares a large part of any confiscations that result from cooperation between the two countries on drug cases, and other nonvictim criminal matters, with the Dominican Republic.
In September of 2008, ICE conducted a month long enforcement operation with GODR Customs and National Police consisting of teams at various airports and at the ferry to Puerto Rico focusing on identifying individuals who failed to declare currency in excess of $10,000. The operation, conducted at airports around the country and the ferry terminal in Santo Domingo, resulted in 15 currency seizures totaling over $340,000. This was the most recent of several similar operations and ICE will continue to coordinate similar operations on a routine basis.
The Dominican Republic is a member of the Organization of American States (OAS) and the Caribbean Financial Action Task Force (CFATF)- a FATF-style regional body. The Dominican Republic and the United States do not have a mutual legal assistance treaty in place. The United States continues to encourage the GODR to sign and ratify the Inter-American Convention on Mutual Assistance in criminal matters, and to sign related money laundering conventions. The Dominican Republic is a party to the 1988 UN Drug Convention, the UN Convention against Corruption, the UN Convention against Transnational Organized Crime and, the UN Convention for the Suppression of the Financing of Terrorism.
The Government of the Dominican Republic (GODR) continues to enhance its anti-money laundering regime; however, additional improvements are still needed, particularly with regard to combating terrorist financing. While legislative and oversight provisions are being put in place in the formal financial sector, there still exists a lack of coordination among the various entities tasked with anti-money laundering activities. Weak implementation of anti-money laundering legislation leaves the Dominican Republic vulnerable to criminal financial activity. The Government of the Dominican Republic should enhance supervision of the nonfinancial sector, to ensure this sector’s compliance with reporting requirements. The GODR should bolster the operational capacity of the fledgling UAF and ensure a full transition of FIU functions. With adequate personnel and enhanced capability, GODR officials working jointly with U.S. Law Enforcement agencies will have a greater capacity to conduct more effective money laundering investigations. The GODR should devote its resources to developing and implementing a viable anti-money laundering/counterterrorist financing regime that comports with international standards, and should not establish an offshore financial center, which would greatly increase the risk of all-source money laundering.
Ecuador is a major drug transit country, and as such, is vulnerable to money laundering. With a dollar economy geographically situated between two major drug producing countries, Ecuador is highly vulnerable to money laundering, although it is not an important regional financial center. Because only a few major banks have active money laundering controls in place, and because a large number of transactions take place through unregulated money exchange and remittance companies, there is no reliable way to judge the magnitude of such activity in the country. In addition to concerns about illicit transactions through financial institutions, there is evidence that money laundering is taking place through trade and commercial activity, as well as through trafficking of people. Weakly regulated casinos serve as an additional vulnerability for money laundering. Large amounts of unexplained currency entering and leaving Ecuador indicate that transit and laundering of illicit cash are also significant activities. Though smuggled goods are regularly brought into the country, there is no evidence that they are significantly funded by drug proceeds. Recent allegations, however, have surfaced about the possibility of Colombian drug traffickers’ involvement in using Ecuador’s financial system to launder drug proceeds through pyramid or Ponzi schemes.
Ecuador’s financial sector consists of 29 banks, 13 investment companies, two formal exchange houses, 28 regulated cooperatives (and an estimated 600 to 800 additional unregulated, unlicensed and unsupervised cooperatives), 39 insurance companies, two stock exchanges, and eight mutual funds. Several Ecuadorian banks maintain offshore offices. The Superintendency of Banks and Insurance is responsible for oversight of both offshore and onshore financial institutions. Regulations are essentially the same for onshore and offshore banks, with the exception that offshore deposits no longer qualify for the government’s deposit guarantee. Anonymous directors are not permitted. Licensing requirements are the same for offshore and onshore financial institutions. However, offshore banks are required to contract external auditors pre-qualified by the Superintendency of Banks. These private accounting firms perform the standard audits on offshore banks that would generally be undertaken by the Superintendency in Ecuador. Bearer shares are not permitted for banks or companies in Ecuador. Small local credit unions that provide loans and money transfers are numerous—approximately 5,800, according to tax authorities—and are regulated only by the Ministry of Social Affairs.
Law 2005-12 of October 2005 criminalizes money laundering in Ecuador. The law amends the Narcotics and Psychotropic Substance Act of 1990 (Law 108) and criminalizes the laundering of illicit funds from any source. It also penalizes the undeclared entry of more than $10,000 in cash or other convertible assets. The 2005 law also criminalizes money laundering in relation to any illegal activity, including drug trafficking, trafficking in persons, and prostitution. Money laundering is penalized by a prison term of one to nine years, depending upon the amount laundered, as well as a monetary fine. However, it is unclear if a conviction is required for the predicate offense to prosecute for money laundering.
Law 2005-12 establishes the National Council against Money Laundering, headed by the Procurador General (solicitor general) and includes representatives of all government entities involved in fighting money laundering, such as the Superintendency of Banks and the National Police. The law also establishes Ecuador’s financial intelligence unit (FIU), the Unidad de Inteligencia Financiera (UIF), under the purview of the Council. There have been three UIF directors since the first was appointed in November 2006, with the most recent taking office in May 2008. The UIF became operational on December 1, 2007, and continues to strengthen its analytical capacity through technical assistance and improved software. An initiative under the new director has been to target casinos as potential sources of money laundering. During the year, the UIF promulgated two new regulations to strengthen monitoring and enforcement of the Money Laundering Law, one relates to casinos and the other to banks, cooperatives and credit unions. Under the new director, the UIF has referred 15 cases to the Attorney General’s office for prosecution, with three of the cases related to casinos.
All entities that fall under the 1994 Financial System Law, including banks, savings and credit institutions, investment companies, stock exchanges, mutual funds, exchange houses, credit card administrators, money transmitters, mortgage companies, insurance companies and reinsurance companies, are required to report all “unusual and unjustified” transactions to the UIF within 48 hours. Financial institutions under the supervision of the Superintendency of Banks and Insurance currently report suspicious transactions to the Superintendency. Obligated entities are also required to establish “know-your-client” provisions, report cash transactions over $10,000 (including structured transactions amounting to more than $10,000 over a 30-day period), and maintain financial transaction records for ten years. Any person entering Ecuador with $10,000 or more in cash must file a report with the customs service; however, this requirement is currently not being enforced. Entities or persons who fail to file the required reports or declarations may be sanctioned by the Superintendency of Banks. The UIF may request information from any of the obligated entities to assist in its analysis of suspicious transactions, and cases that are deemed to warrant further investigation will be sent to the Ministry of the Public. The UIF is also empowered to exchange information with other financial intelligence units on the basis of reciprocity, and has entered into agreements with several countries to do so.
Some existing laws may conflict with the detection and prosecution of money laundering. For example, the Bank Secrecy Law severely limits the information that can be released by a financial institution directly to the police as part of any investigation, and the Banking Procedures Law reserves information on private bank accounts to the Superintendency of Banks. In addition, the Criminal Defamation Law includes sanctions for banks and other financial institutions that provide information about accounts to police or advise the police of suspicious transactions if no criminal activity is ultimately proven. The law also does not provide safe harbor provisions for bank compliance officers. The UIF is seeking legal reforms to address at least some of these issues.
Ecuador’s first major money laundering case began in August 2006 with the arrest of approximately a dozen alleged members of a Colombian money laundering operation and the seizure of a large number of assets in Ecuador. The suspects were linked to accused drug trafficker Hernan Prada Cortes, who had acquired many Ecuadorian businesses and real properties in the names of other persons since 2000, and was extradited to the United States from Colombia. In February 2008, seven defendants in the case were convicted of money laundering, with prison sentences of four to eight years. The court also ordered the forfeiture of all seized assets to the state and the closing of six businesses. In August 2008, there was a second conviction under the 2005 Money Laundering Law, with an Ecuadorian female and Spanish male sentenced to three years and a fine of $265,000 for attempting to bring more than $500,000 into Ecuador illegally in July 2007.
In 2008, ICE and Ecuadorian customs authorities conducted joint interdiction operations in furtherance of ICE’s Operation Firewall, a law enforcement effort focusing on the interdiction and investigation of bulk cash being smuggled around the world. The operations, conducted at airports in Quito and Guayaquil, resulted in the seizure of approximately $1,014,952. ICE is providing technical assistance to the Ecuadorian investigations.
Ecuador’s legal system provides for asset forfeiture upon conviction; however, civil forfeiture is not permitted. The National Council against Money Laundering is responsible for administering the freezing and seizure of funds that are identified as originating from illicit sources. A special fund for forfeited assets will be set up in the Central Bank, and these assets will be distributed among government entities responsible for combating money laundering. No statistics are available on the amount of assets seized or frozen by the Government of Ecuador (GOE) in 2008.
Ecuador has not criminalized terrorist financing. The Ministry of Foreign Affairs, Superintendency of Banks and the Association of Private Banks formed a working group in December 2004 to draft a law against terrorist financing. In 2006, the draft law passed its first debate in Congress, but no further actions were taken before the Congress went into recess and was replaced by a Constituent Assembly in 2007. In late 2008, the UIF developed a new draft law that included terrorist financing and was vetting it through government offices before introducing it to the legislature for approval. The Superintendency of Banks has cooperated with the U.S. Government in requesting financial institutions to report transactions involving known terrorists, as designated by the United States as Specially Designated Global Terrorists pursuant to Executive Order 13224, or as named on the consolidated list maintained by the United Nations 1267 Sanctions Committee. No terrorist finance assets have been identified to date in Ecuador. The Superintendency would have to obtain a court order to freeze or seize such assets, in the event they were identified in Ecuador. Currently, there are no measures in place to prevent the misuse of charitable or nonprofit entities to finance terrorist activities.
Following a referendum in September in which a new Constitution was approved, the government has been reorganizing the judiciary and considering various legal reforms. Among these possible reforms are changes to the Money Laundering Law, the Criminal Procedures Code and the Narcotics Law. The government is also considering adopting anti-terrorist financing and civil asset forfeiture legislation. While many of these proposed changes could greatly improve the prosecuting of money laundering and financial crime cases, it is too early to determine whether these changes will occur or what specifically they might entail.
Ecuador is a member of the Financial Action Task Force for South America (GAFISUD), and held the GAFISUD presidency in 2007. The GOE underwent a mutual evaluation by GAFISUD in September 2007, and the mutual evaluation report was accepted by the GAFISUD plenary in December 2007. The evaluation team found the GOE to be noncompliant or only partially compliant with 48 of the 49 Financial Action Task Force Recommendations on money laundering and terrorist financing. The mutual evaluation report noted the lack of a counterterrorist financing law and the lack of successfully prosecuted money laundering cases, but recognized that the UIF was making some progress.
Ecuador is a party to the 1988 UN Drug Convention, the UN Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption. The GOE is also a member of the OAS Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering. Ecuador and the United States are parties to a bilateral Agreement for the Prevention and Control of Narcotics Related Money Laundering that entered into force in 1993, and a 1994 Agreement to Implement the United Nations 1988 Drug Convention as it relates to the transfer of confiscated property, securities and instrumentalities. There is also a Financial Information Exchange Agreement (FIEA) between the GOE and the United States to share information on currency transactions. The UIF has signed memoranda of understanding with the FIUs of Argentina, Brazil, Bolivia, Chile, Colombia, Panama, and Peru for the exchange of information.
The GOE has made progress in combating money laundering in recent years with the passage of anti-money laundering legislation and the establishment of an operational financial intelligence unit. However, the GOE should fully implement the existing legislation and ensure that reporting requirements are enforced. Ecuador is one of three countries in South America that is not a member of the Egmont Group of FIUs, and the GOE should ensure that the UIF becomes fully functional and meets the standards of the Egmont Group and the Financial Action Task Force. The GOE should criminalize the financing of terrorism to adhere to the UN Convention to which it is a party; such a step would also enable its FIU to apply for membership in the Egmont Group. The GOE should also address items that were not accounted for in its money laundering legislation, including the abolition of strict bank secrecy limitations and any potential sanctions for financial institutions that report suspicious transactions. Similarly, the GOE should amend its current legislation so that penalties applying to the laundering of funds under $5,000 are sufficiently dissuasive (the current penalty for laundering less than $5,000 is a fine of double the amount laundered and no prison terms apply), and clarify whether a conviction for a predicate offense is required before prosecutors may charge an individual with money laundering. Finally, the GOE should take all necessary steps to comply fully with international anti-money laundering and counterterrorist financing standards to which it has formally committed through its membership in the UN, the OAS and GAFISUD.
Egypt, The Arab Republic of
Egypt is not considered a regional financial center or a major hub for money laundering. Egypt is becoming a more sophisticated financial center, but still has largely a cash economy. Many financial transactions do not enter the banking system. Egypt has a large informal economy as well, but data on the size of the informal economy is hard to come by. As part of its on-going economic reform plan, which began in 2004, the Government of Egypt (GOE) continued its financial sector reforms in 2008, and Egypt has received positive feedback from the World Bank and IMF on many of the financial sector reform efforts. However, some scheduled reform items were not completed in 2008, which may be partly attributable to global financial conditions. Accomplishments in 2008 included the launch of the small and medium size enterprise (SME) stock exchange, needed revisions to the capital markets law, and new amendments to the anti-money laundering law. One setback in 2008 was when efforts to privatize Banque du Caire (Cairo Bank) stalled after the Central Bank of Egypt (CBE) determined that none of the submitted bids met the government’s minimum accepted bid. Few money laundering cases have made it to court in the last several years. While Egypt has improved supervision and the quality of its regulatory regime to prevent and fight money laundering, some activities continue which make Egypt vulnerable, including: illegal dealings in antiquities, corruption, misappropriation of public funds, smuggling, the use alternative remittance systems, and the misappropriation of public funds.
While there is no significant market for illicit or smuggled goods in Egypt, there is evidence that trade goods, arms, and cash are smuggled across Egypt’s border with Gaza. The funding source is unclear, as is the destination of the proceeds. The under-invoicing of imports and exports by Egyptian businessmen is still a relatively common practice. The primary goal for businessmen who engage in such activity is reportedly to avoid taxes and customs fees, although those taxes and fees have been reduced in recent years. Customs fraud and invoice manipulation are also found in regional value transfer schemes and underground finance. A large portion of Egypt’s economy remains undocumented and tax evasion remains a problem. The Ministry of Finance is attempting to address the evasion problem by improving the capacity of its anti-evasion unit and trying to obtain high profile prosecutions.
The CBE estimates that Egyptian expatriate workers remitted $8.5 billion in fiscal year 2007-2008. Western Union and Moneygram are the two primary formal cash transfer operators in Egypt. Egyptian authorities believe that informal remittance systems such as hawala are not a large phenomenon in Egypt, and therefore these systems are not monitored or regulated. As the black market for Egyptian pounds has dried up, the need for using alternative remittance systems has lessened. There are many overseas Egyptian workers, so as in many countries in the region, informal remittance systems exist. Those overseas workers who may be using informal means for convenience purposes, may do so because of lack of familiarity with banking procedures, desire to avoid fees, or because some banks require the sender to be an account holder.
Egypt’s Law No. 80 of 2002 criminalizes laundering of funds from narcotics trafficking, prostitution and other immoral acts, terrorism, antiquities theft, arms dealing, organized crime, and numerous other activities. Law No. 80 provides the legal justification for providing account information to responsible civil and criminal authorities. The law established the Money Laundering Combating Unit (MLCU) as Egypt’s financial intelligence unit (FIU), which officially began operating on March 1, 2003, as an independent entity within the CBE. The anti-money laundering law (AML) provides the main requirements of an anti-money laundering regime, such as record keeping, AML supervision, reporting of suspicious transaction reports (STRs), protection from liability for reporting, and details of the penalties. The legal basis by which the MLCU derives its authority, also spells out the predicate crimes associated with money laundering, establishes a Council of Trustees to govern the MLCU, defines the role of supervisory authorities and financial institutions, allows for the exchange of information with foreign competent authorities, and set the detailed procedures for the implementation of Security Council Resolutions related to targeted financial sanctions. Article 86 of the Penal Code criminalizes the financing of terrorism.
In 2008, Law 80 was amended to strengthen the AML by including some additional categories of crimes that are now covered under the law. These include, insider trading, and customs evasion. The amendments also strengthened the role of MLCU within the GOE, requiring other competent government agencies to report to the MLCU any available information on money laundering crimes or the financing of terrorism. The amendment also requires that if a conviction judgment is passed in a money laundering case related to a legal person, that the judgment be published in two daily widespread newspapers and allows the judge to order suspension of the activities of the legal person for no more than one year.
After the promulgation of the new amendments, each one of the supervisory authorities (Central Bank of Egypt, Capital Markets Authority, Egyptian Insurance Supervisory Authority, General Authority for Investment and Free Zones, Ministry of Technology and Telecommunication and Mortgage Finance Authority) updated their own AML/CTF regulations and the FIU issued new know your customer (KYC) rules for each type of financial institutions.
The MLCU has its own budget and staff and full legal authority to examine all STRs and conduct investigations. Field investigations are administered by the FIU and conducted on behalf of the FIU with the assistance of law enforcement agencies, including the Ministry of Interior, the National Security Agency, and the Administrative Control Agency. Once concluded, results of investigations are sent back to the FIU for further examination and analysis. The FIU decides whether or not to forward the case to the public prosecutor. The MLCU shares information with appropriate agencies and those agencies are required to share information with the MLCU.
The MLCU is directed by a five-member Council of Trustees, which is chaired by the Assistant Minister of Justice for Legislative Affairs. Other members of the council include the Chairman of the Capital Markets Authority, the Deputy Governor of the CBE, a representative from the Egyptian Banking Federation, and an expert in financial and banking affairs. In June 2004, the MLCU was admitted to the Egmont Group.
Money laundering investigations are carried out by one of the three law enforcement agencies in Egypt, according to the type of predicate offense involved. The Ministry of Interior, which has general jurisdiction for the investigation of money laundering crimes, has a separate AML department that includes a contact person for the MLCU who coordinates with other departments within the ministry. The Ministry of Interior’s AML department works closely with the MLCU during investigations. It has established its own database to record all the information received, including STRs, cases, and treaties. The Administrative Control Authority has specific responsibility for investigating cases involving the public sector or public funds. It also has a close working relationship with the MLCU. The third law enforcement entity, the National Security Agency, plays a more limited role in the investigation of money laundering cases, where the predicate offense threatens national security.
The CBE’s Bank Supervision Unit shares responsibility with the MLCU for regulating banks and financial institutions and ensuring compliance with AML law. Under the AML law, banks are required to keep all records for five years, and numbered or anonymous financial accounts are prohibited. The CBE also requires banks to maintain internal systems enabling them to comply with the AML law and has issued an instruction to banks requiring them to examine unusual, including large, transactions. In addition, banks are required to submit quarterly reports showing compliance with respect to their AML responsibilities. Improving the quality of the Supervision Department at the CBE has been a main tenant of the Bank reform effort. Reporting of suspicious transactions is compulsory by all banks and nonbank financial institutions.
Regulatory and supervisory authorities, including the CBE and MLCU undertake periodic on-site and off-site compliance assessments of all banks operating in Egypt. In the case of violations, banks are notified of corrective measures to be undertaken with a deadline for making the necessary changes. Compliance is ascertained via follow-up visits. Sanctions for noncompliance include issuing a warning letter, imposing financial penalties, forbidding banks to undertake certain activities, replacing the board of directors, and revoking the bank’s license.
The CBE also monitors bureaux de change and money transmission companies for foreign exchange control purposes, giving special attention to accounts with transactions above certain limits. The CMA, which is responsible for regulating the securities markets, also conducts inspections of firms and independent brokers and dealers under its jurisdiction. Inspections are aimed at explaining and discussing AML regulations and obligations, as well as evaluating the implementation of systems and procedures, including checking for an internal procedures manual and ensuring the appointment of compliance officers.
The Egyptian Insurance Supervisory Authority (EISA) supervises insurance companies and controls for compliance with AML laws and regulations. The General Authority for Free Zones and Investment (GAFI) regulates activity in free zones and Special Economic Zones (SEZ). The Ministry of Communication and Information Technology regulates the Postal Authority and the financial services it offers. Egypt allows gambling in casinos located in international hotels, but only foreigners are allowed to enter the casinos. All cash transactions at casinos are performed by licensed banks subject to AML controls. Individuals acting as financial intermediaries, such as lawyers and accountants are not currently subject to AML controls. Prime Ministerial decree of 2008 added precious metal dealers and real estate brokers to the list of entities covered under the purview of the AML law.
Several recent laws and regulations govern the transportation of cash into the country. Law 88 of 2003 established the threshold for declaring foreign currency at borders to the equivalent of $10,000. The 2008 amendments added securities and commercial negotiable papers to the list of items that had to be declared if the value exceeds the equivalent of $10,000. The declaration requirement covers travelers leaving as well as entering the country. The 2008 amendments and accompanying executive regulations stipulate that the Customs Authority must enforce the law relating to cross-border movement of money. Enforcement of this provision is not consistent. The Customs Authority also signed an agreement with the MLCU to share information on currency declarations. Over the last few years there have been reports that Hammas officials repeatedly crossed the Egypt-Gaza border with millions of dollars in smuggled cash. Egyptian Customs Authorities at the Gaza Border must pass all reports of foreign currency declarations at the border to the MLCU, and also alert the European Union border guards of individuals crossing the border with large amounts of cash. Authorities state that terrorist attacks of the past several years have given extra impetus to law enforcement agencies to thoroughly scrutinize currency imports/exports.
Egypt is not an offshore financial center. Offshore banks, international business companies, and other forms of exempt or shell companies are not permitted in the country. Egypt has 9 public free zones, 250 private free zones, and one Special Economic Zone (SEZ). Public free zones are outside of Egypt’s customs boundaries, so firms operating within them have significant freedom with regard to transactions and exchanges. The firms may be foreign or domestic, may operate in foreign currency, and are exempt from customs duties, taxes and fees. Private free zones are established by GAFI decree and are usually limited to a single project such as mixing, repackaging, assembling and/or manufacturing for re-export. The SEZs allow firms operating in them to import capital equipment, raw materials, and intermediate goods duty-free and to operate tax-free. There is no indication that the zones are being used for trade-based money laundering schemes or for financing of terrorism.
The Law on Civil Associations and Establishments (Law No. 84 of 2002) governs the procedures for establishing nongovernmental organizations (NGOs), including their internal regulations, activities, and financial records. The law places restrictions on accepting foreign donations without prior permission from the proper authorities. The Ministry of Social Solidarity, with assistance from the Central Bank, monitors the operations of domestic NGOs and charities to prevent the funding of domestic and foreign terrorist groups.
Although the AML law does not specifically allow for seizure and confiscation of assets from money laundering, the Penal Code (Article 208aa) authorizes seizure and confiscation of assets related to predicate crimes, including terrorism. All assets are subject to seizure, including moveable and immoveable property, rights and businesses. Assets can only be seized with an order from the Public Prosecutor, and the agency responsible for seizing the assets depends on the predicate crime. Typically, the CBE seizes cash and the Ministry of Justice seizes real assets. Confiscated assets are turned over to the Ministry of Finance, and the executive regulations of the AML law allow for sharing of confiscated assets with other governments. The Public Prosecutor’s office is currently engaged in negotiations to enhance cooperation with other governments on asset seizure and confiscation.
In January 2005, the National Committee for Combating Money Laundering and Terrorist Financing was established to formulate general strategy and coordinate policy implementation among the various responsible agencies of the GOE. The committee includes representatives from the Ministries of Interior, Foreign Affairs, Social Affairs, Justice, the National Security Agency, and the MCLU. The same agencies sit on a National Committee for International Cooperation in Combating Terrorism, which was established in 1998.
The GOE has made efforts to replace its emergency law, which has been in force since 1981, with anti-terror legislation. However, in 2008, the emergency law was extended again for another two years. It is unclear when the new anti-terror law will be brought before parliament and if it will include specific measures against terrorist financing.
The GOE and the United States have a Mutual Legal Assistance Treaty. Egyptian authorities have cooperated with U.S. efforts to seek and freeze terrorist assets. Egypt also has agreements for cooperation on AML issues with the United Kingdom, Romania, Zimbabwe, Peru, Canada, and Russia. The MLCU is responsible for circulating to all financial institutions the names of suspected terrorists and terrorist organizations on the UNSCR 1267, 1373, the United Nations Sanctions Committee’s consolidated list, and the list of Specially Designated Global Terrorists designated by the U.S. pursuant to Executive Order 13224. The 2008 Prime Ministerial decree describes these responsibilities clearly. The MLCU is also charged with taking the legal measures to freeze the said actions. No known assets were identified, frozen, seized, or forfeited in 2008.
Egypt is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF). Egypt was scheduled to undergo a Mutual Evaluation assessment with MENAFATF; however, it will be replaced by the World Bank’s Financial Sector Assessment Programs (FSAP) that was conducted in late 2008. Egypt is a party to the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime, the UN Convention against Corruption and the UN International Convention for the Suppression of the Financing of Terrorism.
The quality of the Government of Egypt’s anti-money laundering and terrorist finance regime will be based upon obtaining successful prosecutions and convictions. Egypt’s regime continues to improve, but there are several areas that need improvement, particularly enhancement of investigative capacity dealing with financial crimes. Egypt should consider ways of improving the MLCU’s feedback on STRs to reporting institutions. It should improve its enforcement of cross-border currency controls, specifically allowing for seizure of suspicious cross-border currency transfers. Egyptian law enforcement and customs authorities should examine and investigate trade-based money laundering, informal value transfer systems, and customs fraud. The GOE should ensure that its updated law against terrorism specifically addresses the threat of terrorist financing, including asset identification, seizure and forfeiture.
The Government of El Salvador did not make any significant advances in 2008 to improve its ability to detect, investigate, and prosecute money laundering and financial crimes. The financial intelligence unit (FIU), the Unidad de Inteligencia Financiera, appears to be under used, and lacks institutional direction and investigative capacity. Only seven money laundering cases were brought to trial in 2008, and none resulted in any convictions. The government did request extradition from the United States of two high profile individuals in 2008.
Located on the Pacific coast of the Central American isthmus, El Salvador has one of the largest and most developed banking systems in Central America. The growth of El Salvador’s financial sector, the increase in narcotics trafficking, the large volume of remittances through the formal financial sector and alternative remittance systems, and the use of the U.S. dollar as legal tender make El Salvador vulnerable to money laundering. Through August of 2008, approximately $2.6 billion in remittances were sent to El Salvador through the financial system. This is a decrease of approximately $900,000 from the previous year’s total of $3.5 billion. The quality of additional remittances to El Salvador via other methods such as visiting relatives, regular mail and alternative remittance systems is not known. The Central America Four Agreement between El Salvador, Guatemala, Honduras, and Nicaragua allows for immigration inspection free movement of the citizens of these countries across their respective borders. As such, the agreement represents a vulnerability to each country for the cross-border movement of contraband and illicit proceeds of crime.
Most money laundering is conducted by international criminal organizations. These organizations use bank and wire transfers from the United States to disguise criminal revenues as legitimate remittances to El Salvador. The false remittances are collected and transferred to other financial institutions until sufficiently laundered for use by the source of the criminal enterprise, usually a narcotics trafficking organization.
Decree 498 of the 1998 “Law Against the Laundering of Money and Assets,” criminalizes money laundering related to narcotics trafficking and other serious crimes, including trafficking in persons, kidnapping, extortion, illicit enrichment, embezzlement and contraband. The law also established the FIU within the Attorney General’s office. The FIU has been operational since January 2000. The National Civilian Police (PNC) and the Central Bank also have their own anti-money laundering units.
Under Decree 498, financial institutions must identify their customers, maintain records for a minimum of five years, train personnel in identification of money and asset laundering, establish internal auditing procedures, and report all suspicious transactions and transactions that exceed approximately $57,000 to the FIU. Entities obligated to comply with these requirements include banks, finance companies, exchange houses, stock exchanges and exchange brokers, commodity exchanges, insurance companies, credit card companies, casinos, dealers in precious metals and stones, real estate agents, travel agencies, the postal service, construction companies, and the hotel industry. The law includes a safe harbor provision to protect all persons who report transactions and cooperate with law enforcement authorities, and also contains banker negligence provisions that make individual bankers responsible for money laundering at their institutions. Bank secrecy laws do not apply to money laundering investigations.
In 2008, the FIU identified 215 suspicious banking transactions, and categorized 667 cash transactions as possible instances of money laundering and/or financial crime. The FIU opened 19 formal investigations of suspected money laundering. The Attorney General’s office brought seven money laundering cases to trial, but did not obtain any convictions. The FIU froze a total of $716,905 in funds suspected of being related to money laundering. In 2008, the Government of El Salvador (GOES) formally requested extradition of a former National Legislative Assembly Deputy facing public corruption and money laundering charges who had fled to the United States and was later apprehended in Anaheim, California and held on immigration charges. The GOES has also requested extradition of a fugitive financier apprehended in Miami, Florida who is wanted on charges of defrauding Salvadoran investors in a case dating back to 2005.
The GOES investigates private companies and financial service providers involved in suspicious financial activities. Despite demonstrating a greater commitment to pursue financial crimes, the GOES still lacks sufficient prosecutorial and police resources to adequately investigate and prosecute financial crimes. The GOES has established a secure computerized communication link between the Attorney General’s office and the financial crimes division of the National Civilian Police. In addition to providing communication, the system has a software component that filters, sorts, and connects financial and other information vital to money laundering investigative capabilities. The FIU has reportedly attempted to establish a closer information sharing relationship with the Superintendent of the Salvadoran Financial System (SSF), as well as to formally incorporate the SSF into the existing secure computerized communication link.
To address the problem of international transportation of criminal proceeds, Decree 498 requires all incoming travelers to declare the value of goods, cash, or monetary instruments they are carrying in excess of approximately $11,400. Falsehood, omission, or inaccuracy on such a declaration is grounds for retention of the goods, cash, or monetary instruments, and the initiation of criminal proceedings. If following the end of a 30-day period the traveler has not proved the legal origin of said property, the Salvadoran authorities have the authority to confiscate the assets. In 2008, the GOES confiscated $859,621 in undeclared cash from travelers transiting Comalapa International Airport and other international land border crossings adjacent to Honduras and Guatemala. Of that total, $360,000 was seized as a result of joint interdiction operations at the airport by El Salvador Customs authorities and U.S. Immigration and Customs Enforcement (ICE) in furtherance of Operation Firewall, an ICE comprehensive law enforcement effort into the interdiction and investigation of global bulk cash smuggling.
The GOES has established systems for identifying, tracing, freezing, seizing, and forfeiting narcotics related and other assets of serious crimes. Forfeited money laundering proceeds are deposited in a special fund used to support law enforcement, drug treatment and prevention, and other related government programs, while funds forfeited as the result of other criminal activity are deposited into general government revenues. Law enforcement agencies are allowed to use certain seized assets while a final sentence is pending. In practice, however, forfeited funds are rarely channeled to counternarcotics operations. No legal mechanism exists to share seized assets with other countries. Salvadoran law currently provides only for the judicial forfeiture of assets upon conviction, and not for civil or administrative forfeiture. A draft law to reform Decree 498 to provide for civil forfeiture of assets, currently in the national legislature, has run into resistance from businessmen and others who are fearful that a civil asset forfeiture regime could lead to a crackdown on tax evaders, or possibly be misused for political purposes. In 2008, the GOES froze $716,905 in bank deposits related to money laundering and financial crime investigations.
The GOES passed counterterrorism legislation, Decree 108, in September 2006. Decree 108 further defines acts of terrorism and establishes tougher penalties for the execution of those acts. Article 29 of Decree 108 establishes the financing of terrorism as a criminal offense, punishable by a prison term of 20 to 30 years and a monetary fine ranging from $100,000 to $500,000. The law also granted the GOES the legal authority to freeze and seize suspected assets associated with terrorists and terrorism. However, provisions to improve supervision of cash couriers, wire transfers, and financing of nongovernmental organizations (NGOs) were included in an early draft but not included in the final law.
The GOES has circulated the names of suspected terrorists and terrorist organizations listed on the United Nations (UN) 1267 Sanctions Committee consolidated list to financial institutions. These institutions are required to search for any assets related to the individuals and entities on the consolidated list. There is no evidence that any charitable or nonprofit entity in El Salvador has been used as a conduit for terrorist financing.
El Salvador has signed several agreements of cooperation and understanding with financial supervisors from other countries to facilitate the exchange of supervisory information, including permitting on-site examinations of banks and trust companies operating in El Salvador. El Salvador is also a party to the Treaty of Mutual Legal Assistance in Criminal Matters signed by the Republics of Costa Rica, Honduras, Guatemala, Nicaragua, and Panama. Salvadoran law does not require the FIU to sign agreements to share or provide information to other countries. The FIU is also legally authorized to access the databases of public or private entities. The GOES has cooperated with foreign governments in financial investigations related to narcotics, money laundering, terrorism, terrorist financing and other serious crimes.
El Salvador is a member of the OAS Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering and the Caribbean Financial Action Task Force (CFATF), a FATF-style regional body. The FIU has been a member of the Egmont Group since 2000. The GOES is party to the UN Convention for the Suppression of the Financing of Terrorism, the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption.
El Salvador should strengthen its ability to investigate and prosecute financial crime and improve its mechanisms for seizing and sharing assets. The GOES should ensure the passage of the civil asset forfeiture legislation that is currently under consideration by the legislature. Remittances remain an important sector of the Salvadoran economy and as such should be carefully supervised. The GOES should improve supervision of cash couriers and wire transfers and enact legislation requiring supervision of nongovernmental organizations to comport with international counterterrorism financing norms. The GOES should also ensure that sufficient resources are provided to the Attorney General’s office as well as to the financial crime and narcotics divisions of the National Civilian Police.
France remains an attractive venue for money laundering because of its sizable economy, political stability, and sophisticated financial system. Narcotics-trafficking, human trafficking, smuggling, and other crimes associated with organized crime are among its vulnerabilities.
The Government of France (GOF) first criminalized money laundering related to narcotics-trafficking in 1987. Law 96-392 criminalizes the laundering of proceeds of all crimes. In 2004, the French Supreme Court ruled that joint prosecution of individuals was possible on both money laundering charges and the underlying predicate offense. Prior to this judgment, the money laundering charge and the predicate offense were considered the same offense and could only be prosecuted as one offense. French law has obliged institutions to combat money laundering since 1990. Entities obligated to file suspicious transaction reports (STRs) include those within a variety of financial and nonfinancial sectors, including banks, insurance companies, casinos, and lawyers.
Under Article 324 of the Penal Code, money laundering carries a penalty of five years imprisonment and a fine of 375,000 euros (approximately $525,000). With aggravating circumstances such as habitual or organized activity or connection with narcotics-trafficking (Article 222-38), the penalty increases to ten years imprisonment and a fine of 750,000 euros (approximately $1,050,000). The legal procedure for criminal conspiracy applies to money laundering crimes.
On August 4, 2008, the Parliament passed a law containing a provision allowing the government to transpose the European Union’s (EU) Third Anti-Money Laundering Directive via government order (ordonnance). No such order had been published as of December 2008. In January 2009, the European Commission made the decision to refer France to the European Court of Justice over non-implementation of the Directive, which requires members to update their anti-money laundering (AML) regimes to comport with the most up-to-date standards, particularly with regard to regulation and terrorism financing.
France has developed the Liaison Committee against the Laundering of the Proceeds of Crime, which is comprised of representatives from reporting professions and institutions, regulators, and law enforcement authorities. The Committee’s purpose is to share information with regulated entities and to make proposals to improve the AML system. The Justice Ministry and the French financial intelligence unit (FIU), known as the Unit for Treatment of Intelligence and Action Against Clandestine Financial Circuits (TRACFIN), co-chair this group.
The Banking Commission supervises fiduciary institutions and conducts regular audits of credit institutions. The Insurance and Provident Institutions Supervision Commission reviews insurance brokers. The Financial Market Authority monitors the reporting compliance of the stock exchange and other nonbank financial institutions. The Central Bank (Banque de France) oversees management of the records required to monitor banking transactions. Bank regulators and law enforcement can access the French Tax Administration’s database to obtain information on the opening and closing of accounts. Information is available for depository accounts, transferable securities, and other properties, including cash assets. These records are important tools in the French arsenal for combating money laundering and terrorist financing.
TRACFIN is responsible for analyzing STRs filed by obliged entities. TRACFIN may exchange information with foreign counterparts that observe similar rules regarding reciprocity and confidentiality of information. TRACFIN works closely with the Ministry of Interior’s Central Office for Major Financial Crimes (OCRGDF), which is the main point of contact for Interpol and Europol in France. TRACFIN can obtain information from senior police officers and central or local governments. The State Prosecutor informs the FIU of final court orders relating to suspicious transactions that have been reported.
TRACFIN received 12,481 STRs in 2007. The banking sector submits approximately 81 percent of STRs. The FIU referred 410 cases to the judicial authorities in 2007. In 2006, French courts convicted 126 individuals for money laundering, aggravated money laundering and laundering of narcotics-trafficking proceeds.
In addition to STRs, French law requires two other types of reports be submitted to the FIU. An entity must file a report with TRACFIN when the identity of the principal or beneficiary remains unclear despite due diligence. As with STRs, there is no threshold limit for such reporting. Entities must also file reports when a financial entity acting in an asset management capacity, or on behalf of another party acting in an asset management capacity carries out a transaction on a third party’s behalf, when legal or beneficial owners are unknown. The reporting obligation can also be extended by decree to transactions carried out by financial entities, on their own behalf or on behalf of third parties, with natural or legal persons, including their subsidiaries or establishments, that are domiciled, registered, or established in any country or territory included on any list of noncooperative countries or territories developed by the Financial Action Task Force (FATF).
Law No. 96-392 of 1996 institutes procedures for seizure and confiscation of the proceeds of crime. French law permits seizure of all or part of property. In cases of terrorist financing, France has promulgated an additional penalty of confiscation of the total assets of the terrorist offender.
Since 1986, French counterterrorism legislation has provided for the prosecution of those involved in terrorist financing under the offense of complicity in the act of terrorism. To strengthen this provision, in 2001, France enacted a terrorist financing offense (Article 421-2-2 of the Penal Code) that follows the definition set forth in the UN Convention for the Suppression of the Financing of Terrorism and can result in ten years’ imprisonment and a fine of 225,000 euros (approximately $303,750). In 2007, TRACFIN referred 17 cases of suspected terrorist financing to the judicial authorities for prosecution. TRACFIN participates in the “Cell for the Fight Against the Financing of Terrorism,” an informal group created within the French Ministry of the Economy, Finance, and Industry to gather information to fight terrorist financing.
The GOF moved to strengthen France’s anti-terrorism legal arsenal with the Act of 23 January 2006 (the Act), which entered into force by presidential decree in April 2007. This act empowers the Minister of the Economy to freeze the funds, financial instruments and economic resources belonging to individuals committing or attempting to commit acts of terrorism, and those belonging to companies directly or indirectly controlled by these individuals. Authorities can freeze accounts and financial assets through both administrative and judicial measures. By granting explicit national authority to freeze assets, the Act closes a potential loophole concerning the freezing of a citizen’s assets as opposed to a resident EU-member citizen’s assets. Under the new legislation, France also created a national terrorist list, which allows for the implementation of UNSCR 1373 concerning terrorism.
French authorities have moved rapidly to identify and freeze financial assets of organizations associated with al-Qaida and the Taliban under UNSCR 1267. The GOF takes actions against other terrorist groups through the EU-wide Working Party on implementation of Common Position 2001/931/CFSP on the application of specific measures to combat terrorism (931 Working Party), which replaces the previous informal EU “clearinghouse” procedure. Within the Group of Eight, France has sought to support and expand efforts targeting terrorist financing. France has worked to engage and improve the AML and counterterrorist financing (CTF) capabilities of some African countries by offering technical assistance. On the operational level, French law enforcement cooperation targeting terrorist financing continues to be strong.
The United States and France entered into a mutual legal assistance treaty (MLAT) in 2001. Through MLAT requests and by other means, the French have provided large amounts of data to the United States in connection with terrorist financing. TRACFIN is a member of the Egmont Group and Egmont Committee and has information-sharing agreements with 32 foreign FIUs. In 2007, TRACFIN filed 882 criminal intelligence requests and responded to 883 from counterparts under these agreements.
France is a member of the FATF. It is a Cooperating and Supporting Nation to the Caribbean Financial Action Task Force (CFATF) and an Observer to the Financial Action Task Force of South America (GAFISUD), both FATF-style regional bodies. France is a party to the 1988 UN Drug Convention; the UN Convention against Transnational Organized Crime; the UN Convention for the Suppression of the Financing of Terrorism; and the UN Convention against Corruption.
The Government of France has established a comprehensive AML regime and is an active partner in international efforts to control money laundering and the financing of terrorism. France should continue its active participation in international organizations and its outreach to lower-capacity recipient countries to combat the domestic and global threats of money laundering and terrorist financing. France should ensure the promulgating regulations for compliance with the Third Money Laundering Directive are fully effective, and the supervisory authorities are well-equipped to handle all of their pertinent duties. The GOF should enact a compulsory written cash declaration regime at its airports and borders to ensure that travelers entering and exiting France provide, in writing, a record of their conveyance of currency or monetary instruments that can be saved and shared.
Germany is one of the largest financial centers in Europe. Most of the money laundering that occurs in Germany relates to white-collar crime. Although not a major drug producing country, Germany continues to be a consumer and a major transit hub for narcotics. Organized criminal groups involved in drug-trafficking and other illegal activities are an additional source of money laundering in Germany. Germany is not an offshore financial center.
In 2002, the Federal Republic of Germany (FRG) enacted a number of laws to improve law enforcement’s ability to combat money laundering and terrorist financing. Among other provisions, the measures mandate suspicious activity reporting by a variety of entities, including notaries, accountants, tax consultants, casinos, luxury item retailers, and attorneys.
In May 2002, the German banking, securities, and insurance industry regulators merged into a single financial sector regulator known as the Federal Financial Supervisory Authority (BaFIN). Germany’s anti-money laundering (AML) legislation requires that BaFIN maintain a centralized register of all bank accounts, with electronic access to all key account data held by banks in Germany. Banks cooperate with German authorities. Many have independently developed risk assessment software to screen potential and existing clients and their financial activity, and to monitor transactions for suspicious activity.
Germany’s Money Laundering Act, amended by the Act on the Improvement of the Suppression of Money Laundering and Combating the Financing of Terrorism of August 8, 2002, criminalizes money laundering related to narcotics-trafficking, fraud, forgery, embezzlement, and membership in a terrorist organization. It also increases due diligence and reporting requirements for banks and financial institutions and requires financial institutions to obtain customer identification for transactions conducted in cash or precious metals exceeding 15,000 euros (approximately $20,250). The legislation mandates more comprehensive background checks for owners of financial institutions and tighter rules for credit card companies. Banks must report suspected money laundering to the financial intelligence unit (FIU) as well as to the State Attorney (Staatsanwaltschaft).
In August 2008, new legislation entered into force that contains further provisions on customer due diligence and other internal risk-management measures to prevent money laundering and terrorist financing. The new regulations apply to banks, insurance companies, and a number of professional groups (e.g., financial services providers, lawyers, notaries public, tax advisors, and other business operators). Suitable control structures ensure that proper, accurate and current information is available about the contracting party, to ensure transparency. The new law also expands reporting requirements to encompass transactions that support the financing of terrorism. A European Union (EU) regulation on wire transfers (EC 1781/2006) entered into force on January 1, 2007.
As an EU member, Germany complies with a recent EU regulation requiring accurate originator information on funds transfers for transfers into or out of the EU.
As of June 15, 2007, travelers entering Germany from a non-EU country or traveling to a non-EU country with 10,000 euros (approximately $13,500) or more in cash must declare their cash in writing. The definition of “cash” includes currency, checks, traveler’s checks, money orders, bills of exchange, promissory notes, shares, debentures, and due interest warrants (coupons). The written declaration must also include personal data, travel itinerary and means of transport as well as the total amount of money being transported, its source, its intended purpose, and the identities of the owner and the payee. If authorities doubt the information given, or if there are other grounds to suspect money laundering or the funding of a terrorist organization, the cash will be placed under customs custody until the matter has been investigated. Penalties for nondeclaration or false declaration include a fine of up to one million euros (approximately $1,345,000).
In May 2008, a 29-year old student attempted to depart Frankfurt International Airport with 8.7 million euros (approximately $11,750,000) in currency in his suitcases. The money, consisting of 50 and 100 euro notes, was confiscated and the State Prosecutor opened an investigation.
In September 2008, Germany participated in a multi-national customs cash smuggling operation that included most of the EU as well as a number of North African nations. Frankfurt-based representatives of the Department of Homeland Security Immigration and Customs Enforcement assisted in the coordination of the operation by providing real-time intelligence support to the German command center. During this week-long operation, 800 German customs agents stopped cars along the border in the direction of Switzerland and Liechtenstein. On roads, at airports, and on trains, a total of 13,000 persons and 22,000 pieces of luggage were inspected. In this operation, 181 cases of money smuggling were discovered and 5.5 million euros (approximately $7,425,000) was seized.
Germany has established a single, centralized, federal FIU within the Federal Office of Criminal Investigation (Bundeskriminalamt or BKA). Staffed with financial market supervision, customs, and legal experts, the FIU is responsible for analyzing cases, responding to reports of suspicious transactions, and developing and maintaining a central database of this information. Another unit under the BKA, the Federal Financial Crimes Investigation Task Force, combines 30 specialists in banking and financial transactions from the BKA and Federal Customs Authority to investigate money laundering cases.
Information for 2008 was unavailable, but in 2007, obligated entities filed 9,080 suspicious transaction reports (STRs) pursuant to the Money Laundering Act. According to the FIU’s 2007 annual report, the 9,080 STRs generated 3,933 indications of potential criminal offenses. In comparison, the 10,051 STRs filed in 2006 generated 2,789 indications of criminal violations. The majority of the STRs with potential criminal indications, 3,248 of the 3,933 or 83 percent, cited fraud, including “phishing” and the use of “financial agents”, as possible criminal offenses from the perspective of the reporting party. The individuals recruited in phishing schemes may be liable for money laundering penalties as well as for the illegal provision of financial services. Document forgery and tax offenses were the next most frequently cited offenses.
In 2007, approximately 59 percent of the persons cited in German STRs were German nationals. Of the 41 percent of the STRs that referenced non-German nationals, suspects with Turkish citizenship comprised the greatest proportion followed by Russian, Polish, Kazakh, Iranian, Italian, and Ukrainian nationals. The 2007 statistics on STRs concerning transfers of assets to and from foreign countries displayed a number of trends. As in 2006, Russia and the Ukraine remained the top two destinations for asset transfers that generated STRs in 2007. On STRs reporting transfers of assets from foreign countries to Germany, Russia is the most frequently cited source nation followed by the U.S., Kazakhstan, the United Kingdom, and Switzerland.
As with other crimes, actual enforcement of money laundering laws under the German federal system takes place at the state (sub-federal) level. Each state has a joint customs/police/financial investigations unit (GFG), which works closely with the federal FIU. The State Attorney can order a freeze of accounts when warranted.
Germany moved quickly after September 11, 2001, to identify and correct the weaknesses in its laws that had permitted terrorists to live and study in Germany. One reform package closes loopholes that had permitted members of foreign terrorist organizations to engage in fundraising in Germany (e.g., through charitable organizations). Subsequently, Germany increased its law enforcement efforts to prevent misuse of charitable entities. Germany has used its Vereingesetz, or Law on Associations, to take administrative action to ban extremist associations that “threaten the democratic constitutional order.”
A second reform package enhances the capabilities of federal law enforcement agencies and improves the ability of intelligence and law enforcement authorities to coordinate efforts and to share information on suspected terrorists. The law also provides Germany’s internal intelligence service with access to information from banks and financial institutions, postal service providers, airlines, and telecommunication and Internet service providers. In 2002, the FRG also added terrorism and terrorist financing to its list of predicate offenses for money laundering, as defined by Section 261 of the Federal Criminal Code. The Criminal Code allows prosecution of members in terrorist organizations based outside Germany.
An amendment to the Banking Act institutes a broad legal basis for BaFIN to order frozen assets of EU residents suspected as terrorists. Authorities primarily concentrate on financial assets. BaFIN’s system allows immediate identification of financial assets that can be potentially frozen, and German law enforcement authorities can freeze accounts for up to nine months. However, unless the assets belong to an individual or entity designated by the UNSCR 1267 Sanctions Committee, the FRG cannot seize money until authorities prove in court that the funds were derived from criminal activity or intended for terrorist activity.
Germany participates in United Nations and EU processes to monitor and freeze the assets of terrorists. The names of suspected terrorists and terrorist organizations listed on the UNSCR 1267 Sanctions Committee’s consolidated list and those designated by EU or German authorities are regularly disseminated to financial institutions. A court can order the freezing of nonfinancial assets. Germany has taken the view that the EU Council Common Position requires, at a minimum, a criminal investigation to establish a sufficient legal basis for freezes under the EU 931 Working Party process. Proceeds from asset seizures and forfeitures go into the federal government treasury.
Since 1998, the FRG has licensed and supervised money transmitters, shut down thousands of unlicensed money remitters, and issued AML guidelines to the industry. German law considers the activities of alternative remittance systems such as hawala to be banking activities. Accordingly, German authorities require bank licenses for money transfer services, thus allowing authorities to prosecute unlicensed operations and maintain close surveillance over authorized transfer agents.
German law enforcement authorities cooperate closely at the EU level, such as through Europol. The German government has mutual legal assistance treaties (MLATs) with numerous countries. The FRG exchanges law enforcement information with the United States through bilateral law enforcement agreements and informal mechanisms, and the United States and German authorities have conducted joint investigations. The U.S. and FRG signed a MLAT in Criminal Matters on October 14, 2003. On July 27, 2006, the U.S. Senate ratified the MLAT and the German legislative bodies approved the implementing legislation in July and September 2007. Germany published the implementing legislation in the Federal Gazette on November 2, 2007, and the MLAT will come into effect once the parties formally exchange the instruments of ratification. Additionally, the U.S. and Germany signed bilateral instruments to implement the U.S.-EU Extradition and Mutual Legal Assistance Agreements on April 18, 2006. The approval process for these instruments, as well as the underlying U.S.-EU Agreements, continues and entry into force is expected in the near future. German authorities cooperate with U.S. authorities to trace and seize assets to the full extent allowed under German laws.
In March 2008, German authorities arrested a 24-year old Estonian at the request of the United States as he was transiting Frankfurt International Airport. The subject is charged with illegally accessing the computer systems of a national restaurant chain and stealing credit and debit card numbers from that system with total losses that could exceed $150,000,000. The subject was subsequently returned to the U.S.
German law currently does not permit the sharing of forfeited assets with other countries. Legislation implementing the EU Council Framework Decision 2006/783/JHA, on the application of the principle of mutual recognition of confiscation orders, is expected to enter into force by mid 2009. This legislation will allow for assets to be shared with other EU member states. The new legislation will also make it possible for Germany to share confiscated assets with non-EU member states on a case-by-case basis.
Germany is a member of the Financial Action Task Force, and the FIU is a member of the Egmont Group. Germany is party to the 1988 UN Drug Convention, the UN Convention for the Suppression of the Financing of Terrorism and the UN Convention against Transnational Organized Crime. Germany has signed, but not yet ratified, the UN Convention against Corruption.
The Government of Germany’s AML laws and its ratification of international instruments underline Germany’s continued efforts to combat money laundering and terrorist financing. Germany should amend its wire transfer legislation to ensure that origination information applies to all cross-border transfers, including those within the EU. It should also amend legislation to waive the asset freezing restrictions in the EU 931 Working Party process for financial crime and terrorist financing, so that the freezing process does not require a criminal investigation; as well as amend its legislation to allow asset sharing with other countries. Germany should ratify the UN Convention against Corruption.
Ghana is not a regional financial center, but as it develops, its financial sector is becoming more important regionally. Most of the money laundering in Ghana involves narcotics or public corruption. Ghana is a significant transshipment point for cocaine and heroin transiting from South America to Europe. Police suspect that criminals use nonbank financial institutions, such as foreign exchange bureaus, to launder the proceeds of narcotics trafficking. Criminals also launder illicit proceeds through investment in banking, insurance, real estate, automotive import, and general import businesses. Reportedly, donations to religious institutions have been used as a vehicle to launder money. The number of financial crimes, such as “advance fee” or 419 fraud letters (known as Sakawa in Ghana) and stolen credit and ATM cards originating in Ghana continues to increase.
Informal financial activity accounts for about 45 percent of the total Ghanaian economy. Ghana’s 2000 census found that 80 percent of employment was in the informal sector. A small percentage of the informal economy uses the banking sector. Black market activity in smuggled goods is a concern because some traders smuggle goods to evade tax and import counterfeit goods. In most cases the smugglers bring the goods into the country in small quantities, and Ghanaian authorities have no indication that these smugglers have links to criminals who want to launder money gained through narcotics or corruption.
Ghana has designated four free trade zone areas, but the Tema Export Processing Zone is currently the only active free trade zone. Ghana also licenses factories outside the free zone area as free zone companies. Free zone companies must export at least 70 percent of their output. Most of these companies produce garments and processed foods. The Ghana Free Zone Board and the immigration and customs authorities monitor these companies. Immigration and customs officials do not think that trade-based money laundering (TBML) schemes are a major problem in the free trade zones. Although the Government of Ghana (GOG) has instituted identification requirements for companies, individuals, and their vehicles in the free zone, monitoring and due diligence procedures are lax.
The GOG has developed new laws to stimulate financial sector growth, including the revision of the banking law to strengthen the operational independence of the central bank, the Bank of Ghana. The government is promoting efforts to model Ghana’s financial system on that of the regional financial hub of Mauritius. To this end, the GOG passed the Banking (Amendment) Act, 2007 Act 738, on June 18, 2007. The law establishes a provision for international banking services in Ghana and requires the Bank of Ghana to authorize offshore banks. Prior to this law, the Bank of Ghana licensed only reputable and internationally active banks. On September 7, 2007, Barclays Bank of Ghana Ltd., a subsidiary of Barclays Bank PLC, UK became the first bank to operate as an offshore bank. The Bank of Ghana is in the process of drafting regulations for offshore banks. A Financial Services bill, which will provide for Ghana’s nonbank financial services, is before parliament and expected to be passed by the end of December 2008. To reduce duplication in processes and enhance information exchange, the law will establish a Financial Services Authority, which will absorb the functions of the National Insurance Commission and the Securities Exchange Commission. Ghana will then have two regulators for the financial services sector: the Bank of Ghana will be responsible for all banking and depository institutions, and the Financial Service Authority will handle all other financial services providers. The bill mandates that the two institutions establish a National Financial Services Coordination Committee to facilitate information exchange.
In January 2008 the Parliament passed Ghana’s Anti-Money Laundering (AML) law. Accompanying regulations to the law have also been passed. The law identifies institutions subject to reporting and disclosure requirements; outlines the role of supervisory authorities; details preventive measures against money laundering; establishes customer identification and record keeping requirements; and institutes rules for required suspicious transaction reporting. Ghana’s bank secrecy laws permit the sharing of information with relevant law enforcement agencies. Law enforcement officials can compel disclosure of bank records for drug-related offenses. Bank officials have protection from liability when they cooperate with law enforcement investigations.
The banking sector lacks a strong regulatory framework to prevent money laundering and ensure suspicious transaction reporting, although entities recognize the importance of such a framework. Local banks follow “know your customer” rules. The Bank of Ghana allows two types of foreign currency bank accounts: the foreign exchange (FE) account and the foreign currency (FC) account. The FE account is tailored to foreign currency sourced within Ghana while the FC account targets transfers from abroad. Bank of Ghana regulations instituted in December 2006 under the Foreign Exchange Act permit U.S. $10,000 per year to be transferred from an FE account without documentation and approval from the Bank of Ghana. The regulations also allow import transactions of up to $25,000 without initial documentation for FE accounts. There are no limits on the number of such transactions made on each account or on the number of such accounts that an individual can hold. The law does not permit foreign exchange bureaus to make outward transfers. Ghana has no effective system to obtain data on an individual’s dealings with all the banks in Ghana.
The GOG established a National Coordinating Committee on July 16, 2008, comprised of approximately fifteen government departments and associations from obliged sectors. This body aims to implement a more efficient and cooperative response by the government and the private sector to prevent money laundering, terrorist financing, and other financial crimes in Ghana. The Committee has met several times since its inception.
Ghana has a cross-border currency reporting requirement. However, Ghanaian authorities have difficulty monitoring cross-border movement of currency. In a 2008 operation, the national security office detected that millions of dollars in repatriated foreign currencies has been entering Ghana through the Togo-Aflao border. An individual transports money from Ghana across the border undeclared and then returns through the same border, but declares the money on the Foreign Exchange Declaration Form. This maneuver allows the individual to take the money out of Ghana legally. In a bid to curb this, the Bank of Ghana issued a directive effective October 20, 2008, stating that the highest sum of money permitted to be carried by an individual arriving in the country is $10,000 or its equivalent. However, the Bank of Ghana’s instructions include a number of options and circumstances that to conflict with the stated $10,000 limit, and has reportedly resulted in some confusion regarding the allowable amount for cross-border transportation vis-à-vis bank transfer.
The AML law calls for the establishment of a Financial Intelligence Unit (FIU), which will be called the Financial Intelligence Centre (FIC), and overseen by the National Security Council. The FIU will receive and analyze financial information, suspicious transaction reporting and intelligence, and disseminate an information package to law enforcement authorities for investigation. The FIU will have the authority to obtain information from other government regulatory authorities and from private sector financial institutions. The FIU has not yet been formed, although its site has been selected and offices are undergoing renovation. Ghana plans to fund the FIU through government grants and donations. The GOG is currently recruiting staff, some of whom will be current coordinating committee officers trained in money laundering and terrorist financing issues. In August 2008, the GOG arrested a flight attendant and two accomplices for attempting to launder £59,870 (approx. $90,121). The case is currently under prosecution. No arrests or prosecutions related to terrorist finance occurred in 2008.
The Narcotic Drug Law of 1990 provides for the forfeiture of assets upon conviction of a drug trafficking offense. A February 2007 court order compelled authorities to release seized assets from a 1991 landmark narcotics trafficking case, which resulted in a ten-year jail sentence of the convict, and return the assets to the owners. The ex-convict had appealed the seizure, arguing that the assets did not belong to him. The draft Proceeds of Crime bill, pending since 2006, contains provisions dealing with pre-emptive measures, confiscation and pecuniary penalty orders, search and seizure, and restraining orders and realization of property. Upon passage, the draft Proceeds of Crime bill will merge with the existing Serious Fraud Office Law, 1993 (Act 466). The Serious Fraud Office, established by this law, investigates corruption and crimes that have the potential to cause economic loss to the state.
In the past year, Ghana has criminalized the financing of terrorism, as required by United Nations Security Council Resolution 1373. On July 18, 2008, Parliament passed the Anti-Terrorism Bill, which came before Parliament in 2005. The law addresses terrorist acts, support for terrorist offenses, specific entities associated with acts of terrorism, and search, seizure, and forfeiture of property relating to acts of terrorism. The law imposes a term of imprisonment between seven and twenty-five years for any offense under the law. The Bank of Ghana has circulated the list of individuals and entities on the UNSCR 1267 Sanctions Committee’s consolidated list to local banks, but no Ghanaian entities have identified assets belonging to any of the designees.
Although current Ghanaian law does not provide for the sharing of seized narcotics assets with other governments, the Narcotic Drug Law of 1990 includes provisions for the sharing of information, documents, and records with other governments. It also provides a basis for extradition between Ghana and foreign countries for drug-related offenses. The United States has not requested financial investigative assistance from Ghanaian authorities.
Ghana is a member of the Inter-Governmental Action Group Against Money Laundering and Terrorist Financing in West Africa (GIABA), a regional body modeled after the Financial Action Task Force (FATF). Ghana was scheduled to undergo its mutual evaluation in 2008, but after submitting its mutual evaluation questionnaire, requested that the date of the on-site assessment be moved from October 2008 to April 2009. Ghana has bilateral agreements for the exchange of money laundering-related information with the United Kingdom, Germany, Brazil, and Italy. Ghana is a party to the twelve UN conventions on terrorism, including the UN International Convention for the Suppression of the Financing of Terrorism. Ghana is a party to the 1988 UN Drug Convention, and the African Union Convention on Preventing and Combating Corruption. In June 2007, Ghana ratified the UN Convention against Corruption. Ghana has not signed the UN Convention against Transnational Organized Crime. Ghana has endorsed the Basel Committee’s “Core Principles for Effective Banking Supervision.”
The GOG should move swiftly to implement the AML Law, and should expand the list of predicate crimes to comply with international standards. The GOG should improve capacity among the agencies impacted, and establish its FIU. The GOG should make every effort to pass asset seizure and forfeiture legislation that comports with international standards as soon as possible. Once the laws are in place, Ghana should take the necessary steps to promote public awareness and understanding of financial crime, money laundering and terrorist financing activities. Ghana should immediately release regulations and guidance for its new offshore entities, and draft legislation to ensure that offshore entities are treated identically to the onshore sector under the AML law. Additionally, the GOG should institute a beneficial ownership identification requirement and require that the true names of all onshore and offshore entities and their beneficial owners be held in a registry accessible to law enforcement. The GOG should increase cooperation and information sharing with other governments. Ghana should also become a party to the UN Convention against Transnational Organized Crime.
Gibraltar is an overseas territory of the United Kingdom (UK). A November 2006 referendum resulted in constitutional reforms transferring powers exercised by the UK government to Gibraltar. Gibraltar is a significant international financial center with strong ties to London, the Channel Islands, Israel, Cyprus, and other financial centers. Located at the southern tip of Spain, near the north coast of Africa, Gibraltar is adjacent to known drug-trafficking and human smuggling routes. It is also a retail banking centre for northern Europeans with property in southern Spain. All of these factors contribute to money laundering and terrorist financing vulnerabilities in Gibraltar.
Gibraltar was one of the first jurisdictions to introduce and implement money laundering legislation that covers all crimes. The Gibraltar Criminal Justice Ordinance to Combat Money Laundering, which relates to all crimes, entered into effect in 1996. The Drug Offenses Ordinance (DOO) of 1995 and Criminal Justice Ordinance of 1995, amended in June 2007 as the Criminal Justice Act, criminalize money laundering related to all crimes. Gibraltar extended the Criminal Justice Act to include nonfinancial sectors. The laws mandate reporting of suspicious transactions by any obligated entity or individual. The DOO covers banks, mutual savings companies, insurance companies, financial consultants, postal services, exchange bureaus, attorneys, accountants, financial regulatory agencies, unions, casinos, charities, lotteries, car dealerships, yacht brokers, company formation agents, dealers in gold bullion, and political parties.
Criminal conduct is defined as any activity, either committed in Gibraltar or elsewhere, which if it had been conducted in Gibraltar would be indictable. This includes tax evasion, as the committal of such an offence would normally also include the committal of other indictable offences. The laws cover money laundering offenses related to acquisition, possession or use of property representing proceeds of criminal conduct, concealing or transferring proceeds of criminal conduct, tipping-off, and assisting others to retain the benefit of criminal conduct.
Authorities issued comprehensive anti-money laundering Guidance Notes, which have the force of law, to clarify the obligations of Gibraltar’s financial service providers. Gibraltar issued its most recent Guidance Notes in December 2007 with amendments based on the Criminal Justice (Amendment) Act 2007 and Terrorist (Amendment) Act 2007. The 2007 Guidance Notes apply to banks and building societies, the Gibraltar Saving Bank, investment business, controlled activities, life insurance companies, currency exchangers/bureaux de change, and money transmission/remittance offices.
The Government of Gibraltar (GOG) permits Internet gaming that is subject to a licensing regime. Gibraltar has guidelines for correspondent banking, politically exposed persons (PEPs), bearer securities, and “know your customer” (KYC) procedures.
Gibraltar established the Financial Services Commission (FSC), a unified regulatory and supervisory authority for financial services, under the FSC Ordinance (FSCO) 1989. Required by statute to match the supervisory standards of the UK, the FSC is the supervisory body for banks and building societies; investment businesses; insurance companies; and controlled activities, which include investment services, company management, professional trusteeship, insurance management and insurance intermediation. The main legal instruments governing the regulation and supervision of the financial system, in addition to the FSCO, are: the Banking Ordinance (1992) that provides powers to license and supervise banking and other deposit-taking business in Gibraltar; the Insurance Ordinance (1987) that provides powers to regulate and restrict the conduct of insurance business; and the Financial Services (Collective Investment Schemes) Ordinance that provide for the licensing and supervision of investment business.
Legislation requires all businesses to establish the beneficial owner of any company or asset before undertaking a relationship or incorporating any company or asset. Onshore and offshore banks are subject to the same legal and supervisory requirements. Institutions must retain financial records for at least five years from the date of completion of the business. If the obligated institution has submitted a suspicious transaction report (STR) to the Gibraltar financial intelligence unit (FIU) or when it knows that a client or transaction is under investigation, it is required to maintain any relevant record even if the five year interval has expired. If a law enforcement agency investigating a money laundering case cannot link the funds passing through the financial system with the original criminal money, then the funds cannot be confiscated.
The Financial Services Commission Act 2007 (FSCA), which became effective in May 2007, repeals and replaces the Financial Services Commission Act of 1989. This legislation modernizes and restructures the FSC. One of the most significant changes arising from the FSCA is in respect to the appointment of members of the Commission, who are selected by the minister with responsibility for financial services (presently the Chief Minister) from a short list of three suitable persons provided to him by existing members. The FSC also received expanded statutory functions. The FSC holds formal licensing, supervisory, and regulatory powers over all firms authorized under the Supervisory Acts. The FSC authority also ensures compliance with legislation, rules and guidance notes in general as well as those specific to combating financial crime. The FSC is able to issue Rules and Guidance, which enables the FSC to draft practical guidance for compliance with legislative measures, and regulatory expectations to supplement legislative provisions. As a safeguard against inappropriate or overregulation, the rules and guidance undergo a public consultation process and are subject to final veto of the Minister.
In 1996, Gibraltar established the Gibraltar Coordinating Center for Criminal Intelligence and Drugs (GCID) to receive, analyze, and disseminate financial information and reports filed by obligated institutions. The GCID serves as Gibraltar’s FIU (GFIU) and is a sub-unit of the Gibraltar Criminal Intelligence Department. The GCID consists mainly of police and customs officers but is independent of law enforcement. The GFIU receives approximately 100 STRs per year.
Gibraltar’s 2001 Terrorism (United Nations Measures) (Overseas Territories) Order criminalizes terrorist financing. The Order requires banks to report any knowledge that a present, past or potential client or customer is a terrorist, or receives funds in relation to terrorism, or makes funds available for terrorism. Gibraltar also addresses terrorist financing through the Terrorism Ordinance (2005). Among the terrorism-related offenses are: raising funds for terrorism, the use and possession of money or other property for terrorism, arranging funds for terrorism, and arrangement for the retention or control of terrorist property.
Application of the 1988 U.S.-UK Agreement Concerning the Investigation of Drug Trafficking Offenses and the Seizure and Forfeiture of Proceeds and Instrumentalities of Drug Trafficking was extended to Gibraltar in 1992. The DOO of 1995 provides for mutual legal assistance with foreign jurisdictions on matters related to narcotics trafficking and related proceeds. Gibraltar has passed legislation to update mutual legal assistance arrangements with its European Union and Council of Europe partners. Gibraltar is a member of the Offshore Group of Banking Supervisors (OGBS) and the International Organization of Securities Commissions (IOSC). The GFIU is a member of the Egmont Group. Gibraltar has brought its laws into conformity with the obligations of states parties to the 1988 UN Drug Convention. On November 27, 2007, the UK Government extended to the Bailiwick the UN Convention against Transnational Organized Crime.
The Government of Gibraltar should continue its efforts to implement a comprehensive anti-money laundering/counterterrorist financing (AML/CTF) regime. The criminal laws on money laundering should be consolidated, and powers presently available only in drug-related money laundering cases should be extended to money laundering cases involving the proceeds of other crimes. The GOG should introduce legislative provisions to its asset seizure and confiscation regime allowing authorities to confiscate assets, including cash, even without a link to the original criminal proceeds. Gibraltar needs to conduct risk assessments of those designated nonfinancial businesses and professions that are unsupervised, and determine and extend the necessary authority to conduct AML/CTF compliance examinations of these entities.
Greece is becoming a regional financial center in the rapidly developing Balkans as well as a bridge between Europe and the Middle East. Anecdotal evidence of illicit transactions suggests an increase in financial crimes in the past three years. Greek law enforcement proceedings indicate that Greece is vulnerable to narcotics trafficking, trafficking in persons and illegal immigration, prostitution, cigarette and other forms of smuggling, serious fraud or theft, illicit gambling activities, and large scale tax evasion. While the government has made the pursuit of tax evasion a centerpiece of its economic reform agenda, there are few indications these reforms are having an impact. U.S. law enforcement agencies believe that criminally derived proceeds are not typically laundered through the Greek banking system. Instead, they are most commonly invested in real estate, the lottery, and the stock market. U.S. law enforcement agencies also believe Greece’s geographic location has led to a moderate increase in cross-border movements of illicit currency and monetary instruments due to the increasing interconnection of financial services companies operating in southeastern Europe and the Balkans. Criminal organizations from southeastern Europe and the Balkan region execute a large percentage of crime generating illicit funds. The widespread use of cash facilitates a gray economy as well as tax evasion. Due to the gray economy, it is difficult to determine the amount of smuggled goods in the country. Currency transactions involving international narcotics-trafficking proceeds do not appear to include significant amounts of U.S. currency.
Greece has three free trade zones, located at the ports of Piraeus, Thessalonica, and Heraklion, where foreign goods may be imported without payment of customs duties or other taxes if they are subsequently transshipped or re-exported. There is no information regarding whether criminals use these zones in trade-based money laundering (TBML) or in terrorist financing schemes.
Greek authorities maintain that Greece is not an offshore financial center. Law 3427/2005, which makes reference to domestic and foreign companies, officially replaced Greek law 89/1967, which provided for the establishment of offshore entities. Under Law 3427, foreign and domestic companies may provide specific services to enterprises not established in Greece. These companies must employ at least 4 employees and have at least 100,000 euros ($130,594) in annual operating expenses in Greece. These entities must apply for a special license with the Ministry of Economy and Finance (MoEF) and, once the license is granted, file an application with the Directorate of Foreign Investments in the MoEF, the regulatory authority for companies covered under Law 3427/2005. The do not receive a tax exemption and must comply with anti-money laundering and counterterrorist financing (AML/CTF) law. Pursuant to Article 10 of Law 3691/2008, the MoEF will need to obtain and catalog additional registry information in order to comply with AML/CTF law.
Shipping companies, known for their complex corporate and ownership structures, and which reportedly can be used to hide the identity of the beneficial owner, are not governed by Law 3427, but rather by Laws 27/1975 and 378/1968. Although companies must keep a receipts and expenses book, they have no obligation to publish financial statements. These firms frequently fall under the authority of non-Greek jurisdictions and often operate through a large number of intermediaries, potentially serving as a vehicle for money laundering. Greek law allows banking authorities to check these companies’ transactions, but authorities need the cooperation of other jurisdictions for audits to be effective.
Greek law does not provide for nominee directors or trustees in Greek companies. Previous laws had abolished bearer shares for banks and a limited number of other types of companies. The AML/CTF regime prohibits credit and financial institutions from allowing secret, anonymous, or number-identified accounts, anonymous passbooks, accounts in fictitious names, or accounts without the full names and identifying information of holders. The Government of Greece (GOG) maintains that various transparency laws mandate registered shares. The information available in the “Companies Registries” maintained by several authorities relates solely to the Board of Directors at the time of the incorporation of the company and does not log changes of directors, or the true beneficial owners of the company. Regional registries keep this information in a paper format. Greek law does not prohibit financial institutions from engaging in business with foreign financial institutions that allow their accounts to be used by shell companies.
The BOG maintains that alternative or informal remittance systems are illegal and do not exist in Greece, and it has no plans to introduce initiatives for their regulation. Nonprofit organizations fall within the purview of the Special Control Service (the tax police or YPEE) and the Ministry of Foreign Affairs. However, the GOG has not viewed charitable organizations as vulnerable to terrorist financing or money laundering and has not actively monitored such entities for these crimes. Each nonprofit organization must have a tax identification number, so their tax information is accessible by the financial intelligence unit (FIU). Despite these measures, these entities do not fall under AML/CTF regulation and are not supervised for AML/CTF compliance. The Ministry of Foreign Affairs plans to review the sector, and by the end of 2009, consider legislation to achieve transparency in the activities of nonprofits.
The June 2007 Financial Action Task Force (FATF) mutual evaluation report (MER) of Greece indicated that legal requirements in place to combat money laundering and terrorist financing did not meet international standards. The report articulated concerns about the overall effectiveness of the AML/CTF system, including inadequate customer identification programs and legal systems to prevent money laundering and terrorist financing, and a lack of adequate preventive measures and regulatory oversight.
Greece has had laws criminalizing terrorism, organized crime, money laundering and corruption since July 2002; however, the various laws did not include all categories of offenses, and the laws were poorly drafted, making enforcement difficult. After the adoption of the 2007 MER, the GOG passed new laws and implemented measures to enhance the effectiveness of its AML/CTF system. On August 5, 2008, Greece passed Law 3691/2008 that clearly defines money laundering and includes all offenses punishable by a minimum penalty of more than six months imprisonment. The law makes a money laundering conviction possible without a conviction for a predicate offense and extends the definition of illicit proceeds to include any type or value of property involved. It also removes tax confidentiality restrictions for purposes of AML/CTF reporting. Conviction for a money laundering offense carries a punishment of up to 10 years imprisonment and a fine of up to 1 million euros ($1.31 million). Law 3691/2008 mandates a risk-based approach for all financial institutions, now inclusive of bureaux de change and money remitters, with enhanced due diligence for some clients and politically exposed persons. The law also mandates identification of beneficial owners, defined as individuals who own or control 25 percent plus one share of a legal entity. Under Act 25779/2006, the Bank of Greece (BOG) has applied these provisions to all financial institutions under its supervision.
Greece has three key authorities that supervise and monitor the financial sector: the Banking Supervision Department of the BOG, and the Hellenic Capital Market Commission (HCMC), and Private Insurance Supervision Commission (PISC), (both of which fall under the MoEF). All three entities have extensive supervisory programs and internal departments focused on AML/CTF and staffed with auditors, examiners, financial analysts, and lawyers. These authorities issue regulations, guidelines and circulars, and conduct on-site and off-site audits for AML compliance, special audits as needed, and outreach and training for compliance officers and stakeholders. The GOG gives the three supervisory entities resources and authorities to monitor, supervise and enforce the regulations.
The BOG, Greece’s central bank supervises banks, bureaux de change, and money transmitters. The BOG conducts on-site examinations at least once every two years and off-site or special examinations as needed of entities under its supervision, including Greek banks located in other countries, The BOG hired additional examiners in 2008, and BOG staff attended specialized AML/CTF seminars.
The HCMC monitors compliance with the provisions of the capital market law, and as such supervises brokerage firms, investment firms, mutual fund management companies, portfolio investment companies, real estate investment trusts, financial intermediation firms, clearing houses and their administrators (e.g., the Athens stock market), and investor indemnity and transaction security schemes (e.g., the Common Guarantee Fund and the Supplementary Fund). The HCMC’s AML/CTF unit includes three auditors who have received specialized AML/CTF training. HCMC can draw upon additional expertise as needed from the MoEF.
The PISC, created in January 2008, regulates and supervises the private insurance sector. Its AML/CTF supervision consists of two financial analysts and one lawyer, and can tap other PISC staff. The PISC has requested that each of its obliged entities submit their AML/CTF compliance procedures. PISC began evaluating these and conducting compliance audits at the end of 2008.
According to Article 6 of the new AML/CTF law, all designated nonfinancial businesses and professions (DNFBPs) and all trust and company service providers are subject to the AML/CTF law and have a competent authority. These competent authorities, together with the FIU, are responsible for providing AML/CTF guidance and feedback to entities under their competency in order to ensure that these entities are aware of and comply with their obligations under Law 3691/2008. The General Directorate of Tax Audits of the MoEF has, under the law, established a new unit to regulate and supervise entities under its control, including dealers in high value goods, pawnbrokers, and venture capital firms. The Gambling Control Commission established by Law 3229/2004 oversees casinos and other entities engaged in gambling or betting, including casinos operating on ships flying the Greek flag. Authorities have targeted the gaming industry to restrain money launderers from using Greece’s nine casinos to launder illicit funds; however, up until now, there has been little regulatory oversight of the gaming industry.
Supervised institutions must send to their competent authority a description of the internal control and communications procedures they have implemented to prevent money laundering and terrorist financing. Banks must also undergo internal audits. Bureaux de change must send the BOG a monthly report on their daily purchases and sales of foreign currency. According to the FATF follow-up report, the reorganization of the BOG’s AML/CTF supervision department should have a significant impact on the quality of targeted supervision carried out in bureaux de change and money remittance companies, and the new AML/CTF law and previous legislation is now applicable to these entities.
Under Law 3148, the BOG has direct scrutiny and control over transactions by credit institutions and entities involved in providing services for funds transfers, including electronic transfers. The BOG issues operating licenses after assessing the institutions, their management, and their capacity to ensure the transparency of transactions.
Under Decree 2181/93, banks in Greece must demand customer identification information when a customer opens an account or conducts transactions exceeding 15,000 euros ($19,591). Banks must obtain specific documents from both natural and legal persons. Article 13 of Law 3691 includes requirements on collecting beneficial ownership information and measures relating to CDD requirements. Credit institutions must obtain identification documents when changing money, for all transactions exceeding 500 euros ($653). The law requires that banks and financial institutions maintain adequate records and supporting documents for at least five years after ending a relationship with a customer, or, in the case of occasional transactions, for five years after the date of the transaction. Banks suspecting illegal activity may take measures to gather more information on the identification of the person involved in the transaction, but, reportedly, in the past they have not done so.
Greek law requires every financial institution to appoint a compliance officer to whom all other branches or officers must report suspicious transactions. Both banks and nonbank financial institutions must submit suspicious transaction reports (STRs), though in practice, reportedly, the latter rarely do so. Obligations to report and to furnish all relevant information to prosecutorial authorities also apply to government employees involved in auditing, including employees of the BOG, the MoEF, the HCMC, and the PISC. In 2007, the FIU formalized the standard information required on STRs. Safe harbor provisions protect individuals reporting violations of AML laws and statutes.
Greece has adopted banker negligence laws under which individual bankers face liability if their institutions do not comply with AML/CTF laws and provisions, or do not file STRs. The new AML/CTF law provides the BOG with the authority to levy financial penalties that authorities believe are effective, proportionate and dissuasive. Financial sanctions include fines of up to 3 million or 500,000 euros ($3.92 million or $653,193) per legal entity or individual, respectively. The BOG planned to issue a directive to clarify and enhance transparency in the sanctions regime. The BOG may ask for the removal of the Internal Audit, Compliance or Risk Management Unit chiefs as well as any member of a Board of Directors if any has failed to achieve effective compliance. In the first five months of 2008, the BOG fined banks under its supervision a total of 805,000 euros ($3.1 million) for AML/CTF compliance violations. While the HCMC does not have data on fines levied in 2008, the amount in 2007 totaled 3.8 million euros ($4.97 million). As a new supervisor, the PISC has not yet implemented a fine structure; however, under the new law, it has the authority to do so.
Article 7 of Law 3691/2008 restructured the Greek FIU in order to try to address shortcomings described in the MER and increase the FIU’s effectiveness. The revamped FIU, renamed the Commission for Combating Money Laundering and Terrorist Finance, began operations in September 2008. Although operationally independent, the FIU falls administratively within the Ministry of Finance and Economy. The Supreme Judicial Court appoints the FIU President, who presides over an FIU Board chosen from different ministries by the Ministers of Justice and Economy and Finance, and his alternate. The private sector no longer has a participatory role. This 8-member, part-time, Board coordinates with the competent authorities and the MoEF as Central Coordination Authority. The new law guarantees the FIU financial resources to fulfill its functions via an annex to the state budget. This also provides the FIU independence not granted previously.
To address staffing shortages, the new head of the FIU is hiring new staff. At the end of 2008, the FIU has 26 staff, comprised of police, financial analysts and IT experts seconded from other ministries. When fully staffed, the FIU will have 35 employees. The President of the FIU can also draw upon or other agencies as needed. The FATF follow-up opined that the number of substantive staff still appears insufficient to carry out the wide range of FIU functions.
The Greek FIU receives and processes all STRs. For each STR received, the FIU can access public and private files and demand information from financial, administrative, and law enforcement networks, notably YPEE and the police. The new AML/CTF law amends the bank secrecy law to allow the Greek FIU to receive classified, confidential, and secret information from banks. Although the FIU recently established a database to track STR submissions, it is reportedly insufficient to meet the FIU’s needs, as the FIU still lacks modern technological elements. For example, STRs are hand delivered to the FIU on paper. The FIU’s new leadership has designated a sophisticated STR database as an urgent priority, the MoEF has given assurance that funding is forthcoming, and a new database could be functioning by the end of 2009.
Greek authorities indicate that in 2008 the number of STRs increased and that the FIU expected to receive more than 2,600 reports total for the year. According to the follow-up report, due to longstanding problems, only about 1,100 STRs have been input into the FIU’s system, resulting in a backlog of about 1,400. According to the FIU, as each new STR comes in, it will be analyzed in a timely manner. If the FIU considers an STR to warrant further investigation, it forwards the case to YPEE. When it decides there is enough information to commence prosecution, it forwards the case to the Public Prosecutor. Although the FIU has the authority to impose heavy penalties on those who fail to report suspicious transactions, it has not done so in the past.
YPEE falls under the direct supervision of the MoEF and has formal investigative authority over cases that, broadly defined, involve smuggling and high-value tax evasion. The FIU is responsible for preparing money laundering cases on behalf of the Public Prosecutor’s Office, and works with YPEE to investigate cases that warrant further action. YPEE has its own in-house prosecutor to facilitate confidentiality and speed of action.
In the past, Greek authorities have not frequently prosecuted money laundering cases independent of the predicate offense, and according to the MER, limited data indicates a low rate of convictions on money laundering prosecutions. According to the GOG, since July 2007, a special team of prosecutors has focused on money laundering and terrorist financing issues, handling the majority of cases. The government has also increased financial crimes training for these prosecutors and judges. Despite these measures, there are still shortcomings. The Greek judicial system has one court handling all judicial activity related to money laundering and terrorist financing. Prosecutorial authorities lack an effective system to track money laundering prosecution statistics. The Ministry of Justice has yet to compile statistics related to arrests or prosecutions for money laundering or terrorist financing offenses, despite requests by the FIU and Greek Bar Association to do so. Under the new AML/CTF law, the services of the Ministry of Justice must ensure the collection, registry, and processing of financial crime data. The government has indicated it intends to develop systems to keep statistics.
Law 3691/2008 provides for confiscation of direct and indirect proceeds of a crime, and empowers the FIU to freeze direct and indirect assets of persons involved in money laundering cases. In addition, Greek authorities can now freeze assets in urgent money laundering and terrorist financing cases without first having to open a criminal investigation.
In addition, the new law establishes sanctions of up to 3 million euros ($3.99 million) for failing to freeze assets and funds. The GOG has indicated that the FIU will develop guidance for the financial and DNFBP sectors in the immediate future. Under the new law, an investigating judge or the judicial council can freeze assets temporarily with the consent of the Public Prosecutor. In addition, the FIU President or a Board member can temporarily freeze assets and notify the Public Prosecutor afterwards in order to conduct a further investigation. The new law provides for the seizure of assets upon conviction for an money laundering offense, fines of up to 2 million euros ($2.66 million) and a jail term of up to twenty years.
The YPEE has established a mechanism for identifying, tracing, freezing, seizing, and forfeiting assets of narcotics-related crimes, the proceeds of which are turned over to the government. YPEE investigators have authorization to immediately seize property pending court review and seize property purchased with proceeds of narcotics trafficking or used to facilitate narcotics trafficking. Official forfeiture requires a court order but not a conviction. If the basis for the forfeiture is facilitation proceeds, the Government of Greece need not prove that the property was purchased with narcotics-related proceeds. The GOG must only demonstrate that it was used in furtherance of narcotics trafficking. Even legitimate businesses can be seized if they have laundered narcotics money.
Under Law 3691/2008, Greece has created a Strategic Committee to set national AML/CTF strategy and a Consultative Forum to ensure coordination with the private sector; and designated the MoEF as Central Coordination Authority to assess overall effectiveness.
Law 3691/2008 stipulates that terrorism financing is both a stand-alone offense and a predicate offense for money laundering. An amendment of the penal code extends the scope of terrorist financing to include individual terrorist acts and individual terrorists. The new law does not require that a terrorist act actually occur or that funding be used to finance a particular act, only that funds be used to finance terrorist organizations or groups, or individual terrorists or terrorist acts. Conviction for a terrorist financing offense carries a punishment of at least 10 years imprisonment and a fine of up to 2 million euros ($2.61 million). In the past, the Government of Greece had not provided guidance to obliged institutions on freezing assets without delay and has not monitored compliance with requests. There had been no sanctions for failure to follow freezing requests, and the traditional process for freezing or confiscating funds was lengthy. The new AML/CTF law authorizes the Minister of Economy and Finance to issue a ministerial decision for the freezing of assets of persons or entities suspected of terrorist financing, including those designated on the United Nations Security Council Resolution (UNSCR) 1267 Sanctions Committee consolidated list. The BOG has circulated to all financial institutions under its supervisory jurisdiction the list of individuals and entities on the UNSCR 1267 list, and regularly circulates updated lists as well as information related to financial provisions of UNSCRs related to Iran, the U.S. Treasury’s Office of Foreign Asset Control (OFAC) lists, and U.S. Executive Order lists.
Greece exchanges information on money laundering through its mutual legal assistance treaty (MLAT) with the United States, which entered into force November 20, 2001. The Bilateral Police Cooperation Protocol provides a mechanism for exchanging records with U.S. authorities in connection with investigations and proceedings related to narcotics trafficking, terrorism, and terrorist financing. Cooperation between the U.S. Drug Enforcement Administration and YPEE has been extensive. Greece has signed bilateral police cooperation agreements with twenty countries, including the United States. It also has a trilateral police cooperation agreement with Bulgaria and Romania, and a bilateral agreement with Ukraine to combat terrorism, drug trafficking, organized crime, and other criminal activities. Despite the existing mechanisms for information exchange, the 2007 MER highlighted a lack of cooperation between Greek national and international authorities.
Greece is a party to the 1988 UN Drug Convention, the UN Convention Against Corruption, and the UN Convention for the Suppression of the Financing of Terrorism. Greece has signed, but not yet ratified the UN Convention against Transnational Organized Crime. Greece is a member of the FATF. Its FIU is a member of the Egmont Group.
The Government of Greece made many significant improvements to its AML/CTF regime in 2008, the results and implementation of which remain to be seen. In order to further enhance the effectiveness of its AML/CTF regime, Greece should continue to improve its FIU by making available further resources to deal with the STR backlog, as well as investigations, asset freezing and other actions the Commission is obligated to take. Greece should ensure that the FIU gets the necessary funding and training to develop an improved data management system capable of meeting the needs of the FIU to input, cross compare, and generally conduct a full analysis and possible investigation of all cases related to money laundering and terrorist financing. This includes improving its technical standards and capabilities so that analysts can effectively use its database. These technological upgrades should allow Greek authorities to implement a system to track statistics on money laundering prosecutions, convictions, and sentences, as well as asset freezes and forfeitures. In addition, Greece should dedicate additional resources to the investigation and prosecution of ML cases, and increase specialization and training on AML/CTF for law enforcement and judicial authorities
Greece should issue clear guidance to supervised entities on the sanctions associated with breaches of and noncompliance with requirements under the new AML/CTF law. Authorities should ensure adequate regulation and supervision of lawyers, notaries, and nonprofits. Greece should issue clear guidance to financial institutions and DNFBPs on freezing assets; improve their asset freezing capabilities, and develop a clear and effective system for identifying and freezing terrorist assets. Greece should publicize its system for appealing assets frozen in accordance with its UN obligations. Greece should also ensure uniform enforcement of its cross-border currency reporting requirements and take further steps to deter the smuggling of currency across its borders; and explicitly abolish company-issued bearer shares. Greece also should ensure that companies operating within its free trade zones are subject to the same AML/CTF requirements and gatekeeper and due diligence provisions as in other sectors and bring charitable and nonprofit organizations under the AML/CTF regime. Finally, Greece should ratify the UN Convention against Transnational Organized Crime and the UN Convention against Corruption.
Grenada is not a regional financial center. As a transit location, money laundering in Grenada is primarily related to smuggling and drug-trafficking. Illicit proceeds are typically laundered through a wide variety of businesses, as well as through the purchase of real estate, boats, jewelry, and cars.
As of November 2008, Grenada’s domestic financial sector is comprised of 26 registered domestic insurance companies, 12 credit unions, and five money remitters. Grenada has one trust company and 1,580 international business companies (IBCs), the same number as 2007, a significant, if unexplained, decrease from the 6,000 IBCs reported in 2006. There is one International Betting Company licensed to conduct business in Grenada, but no casinos or Internet gaming sites in operation. There are no free trade zones in Grenada, although the Government of Grenada (GOG) has indicated it may create one in the future. The GOG has repealed its economic citizenship legislation. In 2008, the GOG announced plans to redevelop an offshore financial sector. Grenada’s previous offshore regime collapsed after a multimillion-dollar fraud scheme and its 2001 listing as a Non-Cooperative Country or Territory (NCCT) by the Financial Action Task Force (FATF). After enacting money laundering legislation and regulations in accordance with international standards, Grenada was removed from the NCCT list in 2003.
Bearer shares are not permitted for offshore banks. Registered agents are required by law to verify the identity of the beneficial owners of all shares. In addition, the International Companies Act requires registered agents to maintain records of the names and addresses of company directors and beneficial owners of all shares. Failure to maintain records may result in a penalty of $11,500 and possible revocation of the registered agent’s license. There is no legal barrier to disclosure of client and ownership information by domestic and offshore services companies to bank supervisors and law enforcement authorities.
The Money Laundering Prevention Act (MLPA), enacted in 1999, and the Proceeds of Crime Act No. 3 (POCA) of 2003 criminalize money laundering in Grenada. Under the MLPA, the laundering of the proceeds of narcotics-trafficking and all serious crimes is an offense. Under the POCA, the predicate offenses for money laundering extend to all criminal conduct, which includes illicit drug and weapons trafficking, kidnapping, extortion, corruption, terrorism and its financing, and fraud. According to the POCA, no conviction on a predicate offense is required to prove that certain goods are the proceeds of crime, or to subsequently convict a person for laundering those proceeds. The POCA establishes a penalty of three to ten years in prison and fines of $18,500 or more. This legislation applies to banks and nonbank financial institutions, as well as the offshore sector.
The Grenada Authority for the Regulation of Financial Institutions (GARFIN) became operational in 2007. The GARFIN was created to consolidate supervision of all nonbank financial institutions, and effectively replace the Grenada International Financial Services Authority (GIFSA). Institutions supervised by GARFIN include insurance companies, credit unions, offshore financial services, the building and loan society, money service businesses, and other such services. The Eastern Caribbean Central Bank (ECCB) retains supervision responsibility for Grenada’s commercial banks.
Established under the MLPA, the Supervisory Authority supervises the anti-money laundering/counterterrorist financing compliance of banks and nonbank financial institutions (including money remitters, stock exchange, insurance, casinos, precious gem dealers, real estate intermediaries, lawyers, notaries, and accountants). These institutions are required to know, record, and report the identity of customers engaging in significant transactions, those over the threshold of $3,700. Records must be maintained for seven years. In addition, a reporting entity must monitor all complex, unusual or large business transactions, or unusual patterns of transactions, whether completed or not. Once a transaction is determined to be suspicious or potentially indicative of money laundering, the reporting entity must forward a suspicious transaction report (STR) to the Supervisory Authority within 14 days. Reporting individuals are protected by law with respect to their cooperation with law enforcement entities.
The Supervisory Authority issued its Anti-Money Laundering Guidelines in 2001. The guidelines direct financial institutions to maintain records, train staff, identify suspicious transactions, and designate reporting officers. The guidelines also provide examples to help institutions recognize and report suspicious transactions. The Supervisory Authority is authorized to conduct anti-money laundering inspections and investigations. The Supervisory Authority can also conduct investigations and inquiries on behalf of foreign counterparts and provide corresponding information. Financial institutions may be fined for not granting access to Supervisory Authority personnel.
The GOG regulates the cross-border movement of currency. However, there is no threshold requirement for currency reporting. Law enforcement and Customs officers have the powers to seize and detain cash that is imported or exported from Grenada. Cash seizure reports are shared among government agencies, particularly between Customs and the FIU.
In June 2001, the GOG established a police-style financial intelligence unit (FIU). The FIU is charged with receiving and analyzing STRs from the Supervisory Authority, and with investigating alleged money laundering offenses. The FIU has access to the records and databases of all government entities and financial institutions and is empowered to request any documents it considers necessary to its investigations. From January to November 2008, the FIU received 40 STRs and investigations commenced for all STRs received. The FIU has the authority to exchange information with its foreign counterparts without a memorandum of understanding (MOU).
Two foreign nationals were arrested by GOG authorities for money laundering in October 2007. These individuals came to Grenada with a large number of fraudulent credit cards and over a short period of time, withdrew in excess of $40,000 from automatic teller machines (ATMs) from several local banks. Half of the amount stolen was sent out to a number of different destinations via a legitimate money remittance company, which agreed to freeze the transaction. Local authorities are working with the company to repatriate those funds. The two perpetrators were arrested and charged with money laundering and fraud by false pretense. The women served one year in prison and were deported.
The FIU and the Director of Public Prosecution’s Office are responsible for tracing, seizing and freezing assets. Under current law, all assets can be seized, including legitimate businesses if they are used in the commission of a crime. The banking community cooperates with law enforcement efforts to trace funds and seize or freeze bank accounts. The time period for restraint of property is determined by the High Court. Presently, only criminal forfeiture is allowed by law. Proceeds from asset seizures and forfeitures can either be placed in the consolidated fund or the confiscated asset fund, which is supervised by the Supervisory Authority or the Cabinet for use in the development of law enforcement. No assets were seized in 2008. The approximate amount seized in 2007 was $62,000, with approximately $22,000 forfeited. The Civil Forfeiture Bill, Cash Forfeiture Act, and Confiscation of the Proceeds of Crime Bill were introduced in 2006 and remain under discussion.
Grenada is not a party to any bilateral or multilateral agreements to enhance asset tracing, freezing, and seizure. However, the GOG works actively with other governments to ensure traces, freezes, and seizures take place, if and when necessary, regardless of the status of existing agreements.
The GOG criminalizes terrorist financing through the Terrorism Act No. 5 2003. Grenada has the authority to identify, freeze, seize, and/or forfeit terrorist finance-related assets under the POCA and the Terrorism Act. The GOG circulates to the appropriate institutions the lists of individuals and entities included on the UN 1267 Sanctions Committee’s consolidated list. There has been no known evidence of terrorist financing in Grenada. It is suspected alternative remittance systems are used in Grenada, though none have been positively identified.
In 2003, the GOG passed the Exchange of Information Act No. 2, which strengthens Grenada’s ability to share information with foreign regulators. Grenada has a Mutual Legal Assistance Treaty (MLAT), Tax Information Exchange Agreement and Extradition Treaty with the United States. The GOG cooperates fully with MLAT requests and responds rapidly to U.S. Government requests for information involving money laundering cases.
Grenada is a member of the Caribbean Financial Action Task Force, a FATF-style regional body, and is scheduled to undergo a mutual evaluation in 2009. The GOG is also a member of the OAS Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering. Grenada’s FIU is a member of the Egmont Group. Grenada is a party to the 1988 UN Drug Convention, the UN Convention for the Suppression of the Financing of Terrorism, and the UN Convention against Transnational Organized Crime. Grenada is not a party to the UN Convention against Corruption.
Although the Government of Grenada has strengthened the regulation and oversight of its financial sector, it will need to remain alert to potential abuses and steadfastly implement the laws and regulations it has adopted. The GOG should adopt its pending forfeiture and confiscation bills and establish mechanisms to identify and regulate alternative remittance systems. It should also establish large currency transaction reporting requirements governing financial institutions and border declarations. To improve the conduct of money laundering investigations, the FIU should improve coordination with other law enforcement bodies. The GOG should take advantage of opportunities for law enforcement and customs authorities to initiate money laundering investigations targeted on regional smuggling. To strengthen its legal framework against money laundering, Grenada should move expeditiously to become a party to the UN Convention against Corruption and should not redevelop its offshore financial sector.
Guatemala is a major transit country for illegal narcotics from South America and precursor chemicals from Europe and Asia. According to law enforcement agencies, narcotics trafficking and corruption are the primary sources of money laundered in Guatemala; however, the laundering of proceeds from other illicit activities, such as human trafficking, contraband, kidnapping, tax evasion, and vehicle theft, is substantial. Officials of the Government of Guatemala (GOG) believe that the sources of the criminal proceeds laundered in Guatemala are derived from both domestic sources and foreign criminal activities. Mexican drug traffickers are increasing both their presence in the country and violent clashes with Guatemalan gangs. GOG officials also believe that cash couriers, offshore accounts, and wire transfers are used to launder funds, which are subsequently invested in real estate, small farms, capital goods, large commercial projects, and shell companies, or are otherwise transferred through the financial system. Guatemala continues to be a placement destination for bulk cash and lacks both legal resources and the expertise necessary to aggressively combat financial crime. Over the past year and a half, it is estimated that at least $60 million in drug-related proceeds have either been brought to or generated in Guatemala City. In 2008, approximately $4.32 billion in both formal and informal remittances were sent to Guatemala; a 4.6 percent increase over the total of $4.13 billion in 2007. Remittances sent from abroad account for approximately nine percent of Guatemala’s gross domestic product. The vulnerabilities of historically weak law enforcement and judicial regimes, corruption, and increasing organized crime activity, contribute to a favorable climate for significant money laundering in Guatemala.
Guatemala is not considered a regional financial center, but it is an offshore center. Exchange controls have been lifted and dollar accounts are common, but some larger banks conduct significant business through their offshore subsidiaries. The Guatemalan financial services industry is comprised of 21 commercial banks; nine offshore banks, all of which are affiliated, as required by law, with a domestic financial group (including credit card, insurance, finance, commercial banking, leasing, and related subsidiaries); two licensed money exchangers; 26 money remitters, including wire remitters and remittance-targeting courier services; 17 insurance companies; 16 financial societies; 15 bonded warehouses; 244 savings and loan cooperatives; 11 credit card issuers; nine leasing entities; 11 financial guarantors; and one check-clearing entity operated by the Central Bank. There are also hundreds of unlicensed money exchangers that exist informally.
The Superintendence of Banks (SIB), which is directed by the Monetary Board, has oversight and inspection authority over the Central Bank (Bank of Guatemala), as well as over banks, credit institutions, financial enterprises, securities entities, insurance companies, currency exchange houses and other institutions as may be designated by the Bank of Guatemala Act. Guatemala’s relatively small free trade zones target regional “maquila” (assembly line industry) and logistic center operations, and are not considered by GOG officials to be a major money laundering concern, although some proceeds from tax-related contraband may be laundered through them. The Ministry of Economy reviews and approves applications for companies to open facilities in free trade zones and confirms their business operations meet legal requirements.
The offshore financial sector initially offered a way to circumvent currency controls and other costly financial regulations. However, financial sector liberalization largely removed incentives for legitimate businesses to conduct offshore operations. All offshore institutions are currently subject to the same requirements as onshore institutions and are regulated by the SIB. In June 2002, Guatemala enacted the Banks and Financial Groups Law (No. 19-2002), which placed offshore banks under the oversight of the SIB. The law requires offshore banks that belong to a Guatemalan financial group to be authorized by the Monetary Board and to maintain an affiliation with a domestic institution. It also prohibits an offshore bank that is authorized in Guatemala from conducting financial intermediation activities in another jurisdiction. Banks authorized by other jurisdictions may do business in Guatemala under certain limited conditions.
Pursuant to a 2003 resolution of the Monetary Board, an offshore bank can be authorized, only if the financial group to which it belongs has been previously authorized. By law, no offshore financial services businesses, other than banks, are allowed. In 2004, the SIB and Guatemala’s financial intelligence unit (FIU), the Intendencia de Verificación Especial (IVE), concluded a process of reviewing and licensing all offshore entities, which resulted in the closure of two operations. No offshore trusts have been authorized. Offshore casinos and Internet gaming sites are not regulated.
There is continuing concern over the volume of money passing informally through Guatemala. Much of the more than $4.32 billion in 2008 remittance flows (97.7 percent from the U.S.) passed through informal channels, although sector reforms led to an increased use of banks and other formal means of transmission. Terrorist finance legislation enacted in August 2005 requires remitters to maintain name and address information on senders (97 percent U. S. based) of transfers equal to or over an amount to be determined by implementing regulations that will be in place by 2009. Increasing financial sector competition should continue to expand services and bring more people into the formal banking sector, helping to further isolate those who abuse informal channels.
Decree 67-2001, or the “Law Against Money and Asset Laundering,” criminalizes money laundering in Guatemala. This law specifies that individuals convicted of money or asset laundering are subject to a noncommutable prison term ranging from six to 20 years, and fines equal to the value of the assets, instruments or products resulting from the crime. Convicted foreigners are deported from Guatemala. Conspiracy and attempt to commit money laundering are also penalized. The law applies to money laundering from any crime and does not require a minimum threshold to be invoked. It also holds institutions and individuals responsible for failure to prevent money laundering or allowing money laundering to occur, regardless of personal culpability. Banks and financial institutions can lose their banking licenses; and the institutions, directors, and other employees may face criminal charges if they are found guilty of failure to prevent money laundering. This law also applies to offshore entities that operate in Guatemala but are registered under the laws of another jurisdiction.
Decree 67-2001 also obligates individuals to declare the cross-border movement of currency in excess of approximately $10,000 at the ports of entry. The declaration forms are provided and collected by the tax authority at land borders, airports, and ports. The tax authority sends a copy of the sworn declaration to IVE for its database. The IVE can share this information with other countries under the terms and conditions specified by mutual agreement. In addition, the Law Against the Financing of Terrorism penalizes the omission of declaration with a sentence from one to three years in prison. At Guatemala City’s international airport, a special unit was formed in 2003 to enforce the use of customs declarations upon entry to and exit from Guatemala. Approximately $4.1 million has been seized at the airports, as of October 2008—suggesting that proceeds from illicit activity are regularly hand-carried over Guatemalan borders. However, apart from a cursory check of a self-reporting customs form and random searches, there is little monitoring of compliance at the airport. Compliance is not regularly monitored at land borders. Further complicating compliance is the Central American Four Agreement, which allows free movement of the citizens of Guatemala, Honduras, Nicaragua, and El Salvador across their respective borders.
In addition to the requirements of Decree 67-2001, the Guatemalan Monetary Board’s Resolution JM-191, which approved the “Regulation to Prevent and Detect the Laundering of Assets” (RPDLA), established anti-money laundering requirements for financial institutions. The RPDLA required all financial institutions under the oversight and inspection of the SIB to establish anti-money laundering measures, and introduced requirements for transaction reporting and record keeping. The Guatemalan financial sector has largely complied with these requirements and has a generally cooperative relationship with the SIB.
Financial institutions are prohibited from maintaining anonymous accounts or accounts that appear under fictitious or inexact names. Nonbank financial institutions and privately held companies, however, may issue bearer shares to their partners and stockholders thereby protecting the identity of the owners from public disclosure. However, Guatemalan law prohibits the issuance of bearer shares or privacy laws from being used to prevent the disclosure of financial information to bank supervisors and law enforcement authorities. Financial institutions are required to keep a registry of their customers as well as some types of transactions, such as the opening of new accounts or the leasing of safety deposit boxes. Financial institutions must also keep records of the execution of cash transactions exceeding $10,000 or more per day, and report these transactions to the IVE. Under Decree 67-2001, financial institutions must maintain records of these registries and transactions for five years. Financial institutions are also mandated by law to report all suspicious transactions to the IVE. The law also exonerates financial institutions and their employees of any criminal, civil or administrative penalty for their cooperation with law enforcement and supervisory authorities with regard to the information they provide.
Decree 67-2001 established the IVE within the Superintendence of Banks to supervise financial institutions and ensure their compliance with the law. The IVE began operations in 2002 and in 2008 had a staff of 44. The IVE has the authority to obtain all information related to financial, commercial, or business transactions that may be connected to money laundering. The IVE conducts inspections of financial institution management, compliance officers, anti-money laundering training programs, “know-your-client” policies, and auditing programs. From January 2001 to October 2008, the IVE imposed over $125,000 in administrative penalties for institutional failure to comply with anti-money laundering regulations. As of October 2008, approximately $70,000 in assessed fines was pending final resolution.
In 2008, the IVE underwent an internal reorganization to improve its efficiency and coordination with the Public Ministry and courts. Four new sections were created, the first of which focuses on risk evaluation and prevention through examination of rules, working with banks, and strengthening the reporting of suspicious transactions. The second unit centers on investigating suspicious transactions. The third unit focuses on coordinating directly with the Public Ministry and courts to ensure they have all of the information required as well as provide the IVE with a means to track the status of cases. The fourth unit focuses on analyzing money laundering trends and best practices.
Since its inception, the IVE has received approximately 2,595 suspicious transaction reports (STRs), 293 from January to October 2008, from the 419 obligated entities in Guatemala. All STRs are received electronically, and the IVE has developed a system of prioritizing them for analysis. After determining that an STR is highly suspicious, the IVE gathers further information from public records and databases, other covered entities and foreign FIUs, and assembles a case. Once the IVE has determined a case warrants further investigation, the case must receive the approval of the SIB before being sent to the Anti-Money or Other Assets Laundering Unit (AML Unit) within the Public Ministry. Under current regulations, the IVE cannot directly share the information it provides to the AML Unit with any other special prosecutors (principally the anticorruption or counternarcotics units) in the Public Ministry but the AML Unit may request the Attorney General authorize the transfer of a case to another prosecutor given the nature of the crime. The IVE also assists the Public Ministry by providing information upon request for other cases the prosecutors are investigating.
The AML Unit in the Public Ministry is in charge of directing the investigation and prosecution of money laundering cases. This unit has a staff of 14 officials, and an investigative support group of eight law enforcement officers and investigators. Both the prosecutors and investigators receive yearly ad hoc training in various investigative and legal issues. The IVE referred 12 complaints and two reports to the AML Unit as of October 2008. The Public Ministry’s AML Unit initiated 47 cases as of January 2007, one of which was transferred to another prosecutor for investigation and prosecution due to the nature of the particular crime. Twenty-four money laundering prosecutions have been concluded, 23 of which resulted in convictions. In several cases, assets have been frozen. The cases were made possible by information supplied by cooperating financial institutions. No reports or cases of terrorist financing were reported in 2008 by the IVE.
In 2006, Guatemala created a money laundering task force. The money laundering task force is a joint unit comprised of individuals from the Guatemalan Tax Authority (SAT), the IVE, Public Ministry’s AML Prosecutor’s Office, and Ministry of Government’s National Civil Police. Together they work on investigating financial crimes, building evidence and bringing cases to prosecution. In 2008, the task force was working on four major money laundering investigations and a number of significant drug-related cases.
Current law permits the seizure of any assets linked to money laundering. The IVE, the National Civil Police, and the Public Ministry have the authority to trace assets; the Public Ministry can seize assets temporarily in urgent circumstances, and only the Courts of Justice have the authority to permanently seize assets. In 2003, the Guatemalan Congress approved reforms to allow seized money to be shared among several GOG agencies, including police and the IVE. Nevertheless, the Constitutional Court ruled that all forfeited currency remains under the jurisdiction of the Supreme Court of Justice. The courts do not allow seized currency to be used by enforcement agencies while cases remain open. For money laundering and narcotics cases, any seized money is deposited in a bank safe and all material evidence is sent to the warehouse of the Public Ministry. There is no central tracking system for seized assets, and it is currently impossible for the GOG to provide an accurate listing of the seized assets in custody. In 2008, the Public Ministry reported $3.4 million in seized cash. The lack of access to the resources of seized assets outside of the judiciary has made sustaining seizure levels difficult for the resource-strapped enforcement agencies.
In 2006, Guatemala passed an Anti-Organized Crime Law. Under the law, the use of undercover operations, controlled deliveries, and wire taps is permitted to investigate many forms of organized crime activity, including money laundering crimes. The Anti-Organized Crime Law also provides the possibility for a summary procedure to forfeit the seized assets and allows both civil and criminal forfeiture. Implementing regulations have been enacted, however, the Public Ministry and National Civil Police have not yet set up the units to execute undercover operations, controlled deliveries and wire intercepts.
Guatemala has made significant progress in the implementation of the Financial Action Task Force (FATF) Special Recommendations I, II and V on Terrorist Financing since its last Mutual Evaluation in 2005 by the Caribbean Financial Action Task Force (CFATF), a FATF-style regional body. In June 2005, the Guatemalan Congress passed legislation criminalizing terrorist financing, the “Law Against the Financing of Terrorism.” Implementing regulations were enacted by the Monetary Board in December 2005. The counterterrorist financing legislation also clarified the legality of freezing assets in the absence of a conviction where the assets were destined to support terrorists or terrorist acts. The legislation brings Guatemala into compliance with the FATF Special Recommendations on Terrorist Financing and the United Nations (UN) Security Council Resolution 1373. The GOG has fully cooperated with U.S. efforts to track terrorist financing funds and distributes the UN 1267 sanctions committee’s consolidated list of entities linked to Usama Bin Ladin, al Qaida and the Taliban to Guatemalan financial institutions.
Guatemala is a party to the UN Drug Convention, the UN Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption. The GOG is a member of the OAS Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering and the Caribbean Financial Action Task Force. In 2003, the IVE became a member of the Egmont Group. The IVE has signed a number of Memoranda of Understanding regarding the exchange of information on money laundering issues, seventeen of which also include the exchange of information regarding the financing of terrorism.
Corruption and organized crime remain endemic in Guatemala and are the biggest long-term challenges to the rule of law in Guatemala. The Government of Guatemala has made efforts to comply with international standards and improve its anti-money laundering and counterterrorist financing regime; however, Guatemala should eliminate the use of bearer shares and regulate offshore gaming and casino establishments. The GOG should also continue efforts to improve enforcement of existing regulations, establish units to execute operations authorized in the Anti-Organized Crime Law, and pursue much needed reforms in the law enforcement and justice systems. Cooperation between the IVE and the Public Ministry has improved in recent years, and several investigations have led to prosecutions. Guatemala should increase its capacity to successfully investigate and prosecute money laundering cases. Additionally, the GOG should create an asset forfeiture fund and a centralized agency to manage and dispose of seized and forfeited assets to law enforcement agencies that will provide the Government with the resources necessary in the fight against money laundering, terrorist financing, and other financial crimes. In addition, the GOG should enhance its pursuit of confiscation and forfeiture of the proceeds of arms smuggling, human trafficking, corruption, and other organized criminal activities, and should enact domestic laws permitting international sharing of confiscated assets.
The Bailiwick of Guernsey (the Bailiwick) encompasses a number of the Channel Islands (Guernsey, Alderney, Sark, and Herm). As a Crown Dependency of the United Kingdom (UK), it relies on the UK for its defense and international relations; however, the Bailiwick is not part of the UK. Alderney and Sark have their own separate parliaments and civil law systems. Guernsey’s parliament legislates criminal justice matters for all of the islands in the Bailiwick. Guernsey is a sophisticated financial center and, as such, continues to be vulnerable to money laundering at the layering and integration stages.
The approximately 18,800 companies registered in the Bailiwick do not fall within the standard definition of an international business company (IBC). Guernsey and Alderney incorporate companies, but Sark, which has no company legislation, does not. Companies in Guernsey must disclose beneficial ownership to the Guernsey Financial Services Commission (FSC) before legal formation or acquisition.
Guernsey has 48 licensed banks, all of which have offices, records, and a substantial presence in the Bailiwick. The banks are licensed to conduct business with residents and nonresidents alike. There are approximately 714 international insurance companies and 829 collective investment funds. There are also approximately 18 bureaux de change, ten of which are part of a licensed bank. Bureaux de change and other money service providers must register with the FSC.
Guernsey has a comprehensive legal framework to anti-money laundering and counterterrorist financing. The original 1999 anti-money laundering law creates a system of suspicious transaction reporting, including suspicion of tax evasion. Suspicious transaction reports (STRs) are sent to the Financial Intelligence Service (FIS), Guernsey’s financial intelligence unit (FIU). Guernsey further honed its anti-money laundering/counterterrorist financing (AML/CTF) legislation with the Criminal Justice (Proceeds of Crime) (Financial Services Businesses) (Bailiwick of Guernsey) Regulations, 2007. The legislation criminalizes money laundering for all crimes except drug-trafficking, which the Drug Trafficking (Bailiwick of Guernsey) Law, 2000, as amended, covers in identical terms. The Disclosure (Bailiwick of Guernsey) Law 2007 makes failure to disclose the knowledge or suspicion of money laundering a criminal offense. The duty to disclose suspicious activity extends to all businesses, not only financial services businesses. In 2007, the FSC issued companion guidance entitled “Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing” which replaces the Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism.
Guernsey’s legal framework contains additional legislative provisions aimed at assisting in the detection of money laundering and terrorist financing. These include search and seizure powers, customer information orders and account monitoring orders. The Transfer of Funds (Guernsey) Ordinance 2007 requires any parties that offer funds transfer services to obtain verified identification information for any person transferring funds electronically.
Guernsey authorities approved further measures to strengthen the existing AML/CTF regime with the passage of numerous legislation, regulations, and ordinances in 2008. These include a comprehensive civil forfeiture law, new regulations for certain entities involved in high value transactions, and legislation governing charities and other nonprofit organizations.
Guernsey enacted the Prevention of Corruption (Bailiwick of Guernsey) Law of 2003 and the Regulation of Fiduciaries, Administration Businesses, and Company Directors, etc. (Bailiwick of Guernsey) Law of 2000 (“the Fiduciary Law”) to license, regulate and supervise company and trust service providers. Pursuant to Section 35 of the Fiduciary Law, the FSC must license all fiduciaries, corporate service providers and persons acting as company directors on behalf of any business. The FSC creates Codes of Practice for corporate service providers, trust service providers, and company directors. To receive licenses, these agencies must follow strict standards, including client identification and “know your customer” (KYC) requirements. These entities are subject to regular inspection, and an entity’s failure to comply could result in prosecution and revocation of its license. The Bailiwick is fully compliant with the Offshore Group of Banking Supervisors (OGBS) Statement of Best Practice for Company and Trust Service Providers.
The FSC regulates the Bailiwick’s banks, insurance companies, mutual funds and other collective investment schemes, investment firms, fiduciaries, company administrators and company directors. The Bailiwick does not permit bank accounts to be opened unless there has been a KYC inquiry and the customer provides verification details. Regulations contain penalties to be applied when financial services businesses do not follow their obligations. Upon a company’s application for incorporation, the FSC evaluates the request. The Royal Court maintains the registry of incorporated companies. The Court will not permit incorporation unless the FSC and the Attorney General or Solicitor General have given approval. The FSC conducts regular on-site inspections and analyzes the accounts of all regulated institutions.
As mandated in the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999, as amended, the FSC has a public register of money service providers, including money brokerage firms, money changers, and any business that facilitates or transmits money or value through an informal money or value transfer system or network. Not all financial services businesses are licensed under the Proceeds of Crime Law, as amended. Businesses not licensed under the above legislation must be registered under the Registration of Non-Regulated Financial Services Businesses (Bailiwick of Guernsey) Law, 2008, as amended. This legislation creates a public register of nonregulated financial services businesses which the FSC maintains on its website. Applications for registration must be made to the FSC. The FSC has no obligation to make any enquiries concerning an application for registration or the continued registration of any nonregulated financial services business, unless there is a notice regarding the grounds whereby it could refuse or revoke an application or registration of such a business.
On July 1, 2005, the European Union Savings Tax Directive (ESD) came into force. The ESD is an agreement between the Member States of the European Union (EU) to automatically exchange information with other Member States about EU tax resident individuals who earn income in one EU Member State but reside in another. Although not part of the EU, the three UK Crown Dependencies (Guernsey, Jersey, and the Isle of Man) have voluntarily agreed to apply the same measures to those in the ESD and have elected to implement the withholding tax option—also known as the “retention tax option”—within the Crown Dependencies.
The Guernsey authorities have established a forum, the Crown Dependencies Anti-Money Laundering Group, where the Attorneys General, Directors General, and representatives of Police, Customs, the regulatory community and FIUs from the Crown Dependencies meet to coordinate AML/CTF policies and strategy.
The FIS operates as the Bailiwick’s FIU, and is comprised of Police and Customs Officers. The Service Authority, a committee of senior Police and Customs Officers who coordinate the Bailiwick’s financial crime strategy, directs the FIS. With a mandate to focus on money laundering and terrorist financing issues, the FIS serves as the central point within the Bailiwick for the receipt, collation, analysis, and dissemination of all financial crime intelligence, much of which comes from STR filings. In 2007, the FIS received 539 STRs.
An IMF assessment is scheduled to take place in Guernsey in late 2009. The assessment will cover banking, insurance and investment sector supervisory legislation and practice, together with AML/CTF legislation and its implementation.
There has been counterterrorism legislation covering the Bailiwick since 1974. The Terrorism and Crime (Bailiwick of Guernsey) Law, 2002, replicates equivalent UK legislation. The Terrorism Law criminalizes the failure to report suspicion or knowledge of terrorist financing.
Through the Bailiwick narcotics trafficking, money laundering, and terrorism laws, enforcement of foreign restraint and confiscation orders apply to those foreign countries designated by the UK.
Guernsey cooperates with international law enforcement on money laundering cases. The FSC also cooperates with regulatory/supervisory and law enforcement bodies. The Criminal Justice (International Cooperation) (Bailiwick of Guernsey) Law, 2000 furthers cooperation between Guernsey and other jurisdictions by allowing certain investigative information concerning financial transactions to be exchanged. In cases of serious or complex fraud, Guernsey’s Attorney General can provide assistance under the Criminal Justice (Fraud Investigation) (Bailiwick of Guernsey) Law 1991.
On September 19, 2002, the United States and Guernsey signed a Tax Information Exchange Agreement, which came fully into force in 2006. The agreement provides for the exchange of information on a variety of tax investigations, paving the way for audits that could uncover tax evasion or money laundering activities. Guernsey is negotiating similar agreements with other countries. The 1988 U.S.-UK Agreement Concerning the Investigation of Drug Trafficking Offenses and the Seizure and Forfeiture of Proceeds and Instrumentalities of Drug Trafficking, as amended in 1994, was extended to the Bailiwick in 1996.
Upon its extension to the Bailiwick in 2002, Guernsey enacted the necessary legislation to implement the 1988 UN Drug Convention. The Bailiwick has requested the UK Government seek the extension to the Bailiwick of the UN Convention for the Suppression of the Financing of Terrorism.
Guernsey is a member of the Offshore Group of Insurance Supervisors and the Offshore Group of Banking Supervisors. The FIS is a member of the Egmont Group and represents the jurisdiction within The Camden Assets Recovery Inter-Agency Network (CARIN), an informal network of EU member state contacts convened to work on asset recovery.
Guernsey should continue to amend its legislation to meet international AML/CTF standards and should ensure complete implementation of its new 2008 legislation. It should integrate civil forfeiture into its legal framework. Guernsey should also take steps to ensure the obliged entities uphold their legal obligations, and the regulatory authorities have the tools they need to provide supervisory functions, especially with regard to nonfinancial businesses and professions not currently regulated. Guernsey should likewise fully implement UNSCRs 1267 and 1373 and ensure all obliged entities receive the UN 1267 Sanctions Committee’s consolidated list of entities and individuals.
Guinea-Bissau is not a regional financial center. Increased drug trafficking and the prospect of oil production, increase its vulnerability to money laundering and financial crime. Drug traffickers transiting between Latin America and Europe have increased their use of the country. Guinea-Bissau is often the placement point for proceeds from drug payoffs, theft of foreign aid, and corrupt diversion of oil and other state resources headed for investment abroad. A recent boom in the construction of luxury homes, hotels and businesses, and the proliferation of expensive vehicles, stand in sharp contrast with the conditions in the poor local economy. It is likely that at least some of the new wealth derives from money laundered from drug trafficking. Banking officials also think the country is vulnerable to trade-based money laundering (TBML).
The legal basis for Guinea-Bissau’s anti-money laundering/counterterrorist financing (AML/CTF) framework is the Loi Uniforme Relative a Lutte Contre le Blanchiment de Capiteaux No. 2004-09 of February 6, 2004, or the Anti-Money Laundering Uniform Law (Uniform Law). As the common law passed by the members of West African Economic and Monetary Union (WAEMU or UEMOA), all member states are required to enact and implement the legislation. On November 2, 2004, Guinea-Bissau became the third WAEMU/UEMOA country to enact the Uniform Law. The legislation largely meets international standards with respect to money laundering. Guinea-Bissau has an “all crimes” approach to money laundering. The law requires banks and other financial institutions to implement Know Your Customer (KYC) measures and to record and report the identity of any person who engages in significant transactions, including the recording of large currency transactions. Obliged institutions include financial institutions and nonbank financial institutions such as exchange houses, brokerages, cash couriers, casinos, insurance companies, charities, nongovernmental organizations (NGOs), and intermediaries such as lawyers, accountants, notaries and broker/dealers.
According to the law, obliged entities must report all suspicious transactions to the financial intelligence unit (FIU). There is no threshold amount triggering a report. Safe harbor provisions give reporting individuals and their supervisors civil and criminal immunity from professional sanctions for providing information to the FIU in good faith. The law also criminalizes self laundering. It is not necessary to have a conviction for the predicate offense before prosecuting or obtaining a conviction for money laundering. Criminal liability applies to all legal persons as well as natural persons. However, the legislation does not comply with all Financial Action Task Force (FATF) recommendations concerning politically-exposed persons (PEPs), and lacks certain compliance provisions for nonfinancial institutions. Article 26 of National Assembly Resolution No. 4 of 2004 stipulates that if a bank suspects money laundering it must obtain a declaration of all properties and assets from the subject and notify the Attorney General, who must then appoint a judge to investigate. Reportedly, banks are reluctant to file suspicious transaction reports (STRs) because of the fear of “tipping off” by an allegedly indiscrete judiciary. The bank’s solicitation of an asset list from its client could also amount to “tipping off” the subject. The Central Bank of West African States (BCEAO), based in Dakar, is the Central Bank for the eight countries in the WAEMU, including Guinea-Bissau, and uses the CFA franc currency. The Commission Bancaire, the BCEAO division responsible for bank inspections, is based in Abidjan. However, it does not execute a full AML examination during its standard banking compliance examinations. All three banks operating in the country report that they have AML compliance programs in place
Western Union and MoneyGram function under the auspices of the banks. Unlicensed money remitters and currency exchangers, although prevalent, are illegal. Authorities report problems with porous borders and cash smuggling; reportedly, corruption in the Customs agency exacerbates this situation. Although the current AML legislation obliges NGOs and nonprofits, including charities, to file STRs, the current regulatory regime is unknown.
The 2004 Uniform Law provides for the establishment of an FIU, and the country issued a Directive in 2006 to establish its FIU. However, no operational FIU exists in the country. Guinea-Bissau is working with external donors to establish a functioning FIU, which will be housed within the Ministry of Economy and Finance. A senior Ministry of Finance official will administer the FIU. The FIU’s mandate will be to receive and analyze STRs and, when appropriate, to refer files to the Prosecutor General. The FIU will rely on counterparts in law enforcement and other governmental institutions to provide information upon request for the FIU’s investigations. Lack of capacity, corruption, instability, and distrust (particularly of the judicial sector), could significantly hamper progress in the FIU’s development. The FIU, when operational, will have the authority to share information with any other FIU in the WAEMU/UEMOA countries.
The Judicial Police and prosecutors investigate money laundering as well as terrorist financing. Two Judicial Police officers are currently undergoing training for investigations of money laundering and terrorist financing, and were expected to complete their training in January 2009. The Attorney General’s office houses a small unit to investigate corruption and economic crimes. In November 2007, the Government of Guinea-Bissau’s (GOGB) Audit Office created a commission to investigate illegal acquisition of wealth by present and former government officials. However, a lack of training and capacity, endemic corruption and a reported lack of cooperation from banks impede investigations. Official statistics regarding the prosecution of financial crimes are unavailable. There are no known prosecutions of money laundering. Despite the country’s legal obligation as a WAEMU member state to fully implement the Uniform Law, Judicial Police officials have opined that the Uniform Law is unwieldy and inappropriate for Guinea-Bissau’s environment. In 2008, no financial institutions reported any suspicious transactions, nor did authorities initiate any money laundering investigations.
Under Guinea-Bissau’s law, money from assets seized in the course of a counternarcotics investigation should be applied to further counternarcotics efforts. However, the inability to agree upon which governmental department should be the beneficiary of the seized assets has resulted in the funds going to the state treasury. An inter-ministerial proposal to credit all drug-related seized assets to the Judicial Police was pending at the end of 2008.
The WAEMU/UEMOA Uniform Law does not deal with terrorist financing. Article 203, Title VI of Guinea-Bissau’s penal code criminalizes terrorist financing. However, it has no reporting requirements or attendant regulations. In addition, because the penal code only criminalizes the financing of terrorist groups or organizations, it does not address financing of a single or individual terrorist. The penal code also does not criminalize the financing of terrorist organizations when the money is not used to commit terrorist acts. The BCEAO has released Directive No. 04/2007/CM/UEMOA, obliging member states to pass domestic counterterrorist financing (CTF) legislation. Member states must enact a law against terrorist financing, which will likely be a Uniform Law similar in form and obligation to the AML law. Each national assembly must then enact the law. In July 2007, UEMOA/WAEMU released attendant guidance on terrorist financing for member states. The FATF-style regional body to which Guinea-Bissau belongs, the African Anti-Money Laundering Inter-governmental Group (GIABA), has drafted a uniform law, which it has recommended to its member states for adoption.
The Ministry of Finance and the BCEAO circulate the UN 1267 Sanctions Committee consolidated list to commercial financial institutions. The WAEMU/UEMOA Council of Ministers has issued a directive requiring banks to freeze assets of entities designated by the Sanctions Committee. To date, no institution has identified assets relating to terrorist entities.
Multilateral ECOWAS treaties deal with extradition and legal assistance. Guinea-Bissau is a party to the 1988 UN Drug Convention, and has signed but not ratified the UN International Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the UN Convention Against Corruption. Transparency International’s 2007 Corruption Perception Index ranks Guinea Bissau 147 out of 180 countries.
The Government of Guinea-Bissau should continue to work with its partners in GIABA, WAEMU/UEMOA and ECOWAS to establish and implement a comprehensive AML/CTF regime that comports with all international standards. The GOGB should ensure that the sectors covered by its AML law have implementing regulations and competent authorities to ensure compliance with the law’s requirements. The GOGB should clarify, amend or eliminate Article 26 of the 2004 National Assembly Resolution that appears to mandate actions resulting in the tipping off of suspects. It should also adopt and enact a terrorist financing law. Guinea-Bissau should amend the definitions in its penal code to comport with the international standards regarding financing of individual terrorists and terrorist groups engaging in acts other than terrorism. It should establish, staff and train, its FIU, and ensure that resources are available to sustain its capacity. It should work to improve the training and capacity of its police and judiciary to combat financial crimes, and address any issues resulting from a lack of understanding of money laundering and terrorist financing. Guinea-Bissau should undertake efforts to eradicate systemic corruption and become a party to the UN Convention for the Suppression of the Financing of Terrorism, and the UN Conventions against Corruption and Transnational Organized Crime.
Guyana is neither an important regional nor an offshore financial center, nor does it have any free trade zones. Money laundering is perceived as a serious problem, and has been linked to trafficking in drugs (principally cocaine) and firearms, as well as to corruption and fraud. Guyana has a large informal economy that is vulnerable to money laundering. The Government of Guyana (GOG) made no arrests or prosecutions for money laundering in 2008. Guyana currently has inadequate legal and enforcement mechanisms to combat money laundering, lacks enabling legislation to combat terrorist financing, and its financial intelligence unit (FIU) does not meet the membership requirements to join the Egmont Group.
Under the Money Laundering Prevention Act (MLPA) of 2000, money laundering is an autonomous crime. Although not dependent on the successful prosecution of a predicate crime, the MLPA narrowly defines money laundering as involving the proceeds of certain “prescribed offences,” including blackmail, bribery, counterfeiting, drug trafficking and related offenses, false accounting, forgery, fraud, illegal deposit-taking, robbery involving more than $20,000, thefts involving more than $20,000, and insider trading. The MLPA does not cover the financing of terrorism or “all serious crimes” in its list of prescribed offenses. Banks, offshore banks, finance companies, currency exchange houses, insurance companies, money transmission services, factoring companies, leasing companies, trust companies, and securities and loan brokers are required to report suspicious transactions to the FIU, and records of suspicious transaction reports (STRs) must be kept for six years. Lawyers, casinos, notaries, and accountants are among those entities exempt from financial regulatory control.
Undeclared or misdeclared cross-border movement of currency exceeding $10,000 is a customs violation, subject to a $250,000 fine and six months in prison. Notably, such offenses are reported to the Customs Administration, but not to Guyana’s FIU and other law enforcement bodies.
The Organization of American States reports that the GOG received 15 STRs in 2004, 53 in 2005, and 110 in 2006. GOG has reportedly not released statistics on the number of STRs received in 2007 or 2008 by the FIU, despite the suggestion that the FIU should make these statistics available to relevant authorities as recommended by the Financial Action Task Force (FATF). The MLPA establishes the Guyana Revenue Authority, the Customs Anti-Narcotics Unit, the Attorney General, the Director for Public Prosecutions, and the FIU as the authorities responsible for investigating financial crimes.
The GOG’s anti-money laundering regime is rendered ineffective by other major structural weaknesses of the MLPA. While the MLPA provides for the seizure of assets derived as proceeds of crime, guidelines for implementing seizures and forfeitures have never been established. While the FIU may request additional information from obligated entities, it does not have access to law enforcement information or the authority to exchange information with its foreign counterparts. The FIU has also been staffed by only one person. These limitations collectively stifle the analytical and investigative capabilities of the FIU and law enforcement agencies. As a result of these weaknesses, there has been no money laundering prosecutions or convictions to date.
To augment the tools available to the GOG’s anti-money laundering authorities, in 2007 the FIU drafted legislation entitled the Anti-Money Laundering and Countering the Financing of Terrorism Bill. The bill provides for the identification, freezing, and seizure of proceeds of crime and terrorism; establishes comprehensive powers for the prosecution of money laundering, terrorist financing, and other financial crimes; requires reporting entities to take preventive measures to help combat money laundering and terrorist financing; provides for the civil forfeiture of assets; expands the scope of the money laundering offense; and mandates the accessibility of all relevant data among law enforcement agencies. The legislation provides for oversight of export industries, the insurance industry, real estate, and alternative remittance systems, and sets forth the penalties for noncompliance. The bill also establishes the FIU as an independent body that answers only to the President, and defines in detail its role and powers. The draft legislation was tabled in Parliament in late 2007, and remains in committee debate at the conclusion of 2008. Its passage in the near future is uncertain.
The GOG and the Bank of Guyana continue to assist U.S. efforts to combat terrorist financing by working toward compliance with relevant United Nations Security Council Resolutions (UNSCRs). In 2001, the Bank of Guyana, the sole financial regulator as designated by the Financial Institutions Act of March 1995, issued orders to all licensed financial institutions expressly instructing the freezing of all financial assets of terrorists, terrorist organizations, and individuals and entities associated with terrorists and their organizations. Guyana has no domestic laws authorizing the freezing of terrorist assets, but the government created a special committee on the implementation of UNSCRs, co-chaired by the Head of the Presidential Secretariat and the Director General of the Ministry of Foreign Affairs. To date the procedures have not been tested, as no terrorist assets have been identified in Guyana. The FIU director also disseminates the names of suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee’s consolidated list to relevant financial institutions.
Guyana is a member of the OAS Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering and the Caribbean Financial Action Task Force (CFATF). Guyana is a party to the UN 1988 Drug Convention and the UN Convention against Transnational Organized Crime. On April 16, 2008, Guyana acceded to the UN Convention against Corruption. Guyana’s FIU is one of the few in the region that is not a member of the Egmont Group, and no change in that status is anticipated until Guyana’s anti-money laundering laws have been modernized and the financing of terrorism is criminalized. Guyana does not have a Mutual Legal Assistance Treaty (MLAT) with the United States, but is a party to the Inter-American Convention on Mutual Legal Assistance.
The Government of Guyana should pass the draft legislation on money laundering and terrorist financing that is currently before the Parliament. Enactment of this legislation would extend preventive measures to a wider range of reporting entities, including casinos and designated nonfinancial businesses and professions (DNFBPs). The draft legislation would also provide greater resources and critical autonomy for the FIU, enable the FIU to access law enforcement data, and ensure that the FIU has the operational capacity to meet the membership requirements of the Egmont Group. In short, the passage of this legislation is essential in enhancing the GOG’s compliance with international standards and ensuring that its anti-money laundering and counterterrorist financing regime is operational and effective. In the interim, Guyana should provide appropriate resources and awareness training to its regulatory, law enforcement, and prosecutorial personnel, and establish procedures for asset seizure and forfeiture.
Haiti is not a major financial center. Haiti’s dire economic condition and unstable political situation inhibit the country from advancing its formal financial sector. Haiti is a major drug-transit country with money laundering activity linked to the drug trade and to kidnapping. Rampant corruption of public officials also generates illicit proceeds. Money laundering and other financial crimes are facilitated through banks and casinos, as well as through foreign currency and real estate transactions. While the informal economy in Haiti is significant and partly funded by illicit narcotics proceeds, smuggling is historically prevalent and predates narcotics trafficking. Haiti’s geo-strategic position, lack of an efficient judiciary system, uncontrolled borders, weak police force (about one police officer per 1,000 civilians), and corruption throughout the public sector exacerbate the favorable environment for money laundering.
The Government of Haiti (GOH) has made progress in recent years to improve its legal framework, create and strengthen core public institutions, and enhance financial management processes and procedures. The government of President Rene Preval has continued the monetary, fiscal and foreign exchange policies initiated under the past Interim Government of Haiti with the assistance of the International Monetary Fund and the World Bank. Continued insecurity and a lack of personnel expertise, however, have impacted the Government’s initiatives and slowed its ability to modernize its regulatory and legal framework.
Since 2001, Haiti has used the Law on Money Laundering from Illicit Drug Trafficking and other Crimes and Punishable Offenses (AMLL) as its primary anti-money laundering legislation. The AMLL criminalizes money laundering and establishes a wide range of financial institutions as obligated entities, including banks, money remitters, exchange houses, casinos, and real estate agents. Insurance companies, which are only nominally represented in Haiti, are not covered. The AMLL regulations were amended in 2008 and require financial institutions to establish money laundering prevention programs and to verify the identity of customers who open accounts or conduct transactions that exceed 400,000 Gourde (HTG) (approximately $10,000). It also requires exchange brokers and money remitters compile information on the source of funds exceeding 120,000 HTG (approximately $3,000) or its equivalent in foreign currency. Many financial institutions, such as microfinance institutions, lotteries and insurance companies can be used as money laundering channels, since they are not regulated by any financial law. A draft banking law, before Parliament, will address this regulatory gap.
In 2002, Haiti formed a National Committee to Fight Money Laundering (CNLBA) under the supervision of the Ministry of Justice and Public Security. The CNLBA is in charge of promoting, coordinating, and recommending policies to prevent, detect, and suppress the laundering of assets obtained from the illicit trafficking of drugs and other serious offenses. Haiti’s financial intelligence unit (FIU) established in 2003, the Unité Centrale de Renseignements Financiers (UCREF), falls under the supervision of the CNLBA. The UCREF’s mandate is to receive and analyze reports submitted by financial institutions in accordance with the law. The UCREF has 34 employees, including five analysts. In 2008, reforms were undertaken to strengthen the institution. Institutions, including banks, credit unions, exchange brokers, insurance companies, lawyers, accountants, and casinos, are now required to report to the UCREF transactions involving funds that may be derived from a crime, as well as transactions that exceed 400,000 HTG (approximately $10,000) for which banks and currency exchangers must file a cash transaction report (CTR). Money transfer companies, given the high risk associated with them, have to file CTRs for all transactions amounting to at least 120,000 HTG (approximately $3,000). Failure to report such transactions is punishable by more than three years’ imprisonment and a fine of 20 million HTG (approximately $550,000). Banks are required to maintain records for at least five years and to present this information to judicial authorities and UCREF officials upon request. Bank secrecy or professional secrecy cannot be invoked as grounds for refusing information requests from these authorities. Money launderers get around financial restrictions by opening several bank accounts for less than 400,000 HTG per person (the threshold set by the AMLL) without rousing suspicion.
Although the government has publicly committed to combat corruption, the court system has been largely dysfunctional. None of the investigations initiated under the interim government have led to prosecutions. Implementation of the AMLL has been supported through the restructuring of UCREF, establishing it as a financial intelligence gathering body and through the reassignment of all criminal investigative responsibilities to the Bureau of Financial and Economic Affairs (BAFE), a component of the Haitian National Police (HNP) Office of Judicial Police (DCPJ), which has resulted in stalled cases moving forward. The BAFE includes, in addition to police officers (all of whom have received training in financial investigation techniques), two judges of instruction (“investigating magistrates”) and two prosecutors. Trial judges with specialized financial knowledge have been identified to receive financial cases. The BAFE and UCREF have become engaged in providing evidence to support prosecutions in the United States. The UCREF and the BAFE are currently assisting the United States in at least three major investigations. The BAFE completed 44 financial investigations, of which eight have been submitted to the judicial authorities for prosecution.
The AMLL contains provisions for the seizure and forfeiture of assets; however, the government cannot seize and declare the assets forfeited until there is a conviction. The GOH has expanded the legal interpretation of conviction to include convictions obtained in foreign jurisdictions. In December 2008, the U.S. Securities Exchange Commission (SEC) halted the trading of an investment club run by a Haitian individual who targeted the Haitian community in South Florida and defrauded these investors of approximately $23.4 million. In the fourth quarter of 2008 the BAFE and UCREF, with U.S. Drug Enforcement Administration assistance, began seizing properties in Haiti belonging to drug traffickers incarcerated in the United States for use or disposal by the GOH. In 2008, 18 properties valued at over 21 million dollars, including residences, businesses and bank accounts, were seized and forfeited to the GOH based on U.S. convictions and another 20 properties are the subject of this new initiative.
Although the AMLL provides grounds for seizure it does not contain procedures to handle the management and proceeds of seized assets. The CONALD (National Drug Control Commission) is the agency responsible for managing seized and forfeited assets and is in the process of developing the infrastructure to maintain assets until they are disposed of following forfeiture. This change will empower the government to benefit from forfeited assets and their proceeds.
Flights to Panama City, Panama, remain the main identifiable mode of transportation for money couriers. Cash that is routinely transported to Haiti from Haitians and relatives in the United States in the form of remittances represented over 20 percent of Haiti’s gross domestic product in 2007, according to the Central Bank. Remittances flows through official channels to Haiti were estimated at $1.18 billion in fiscal year 2007. 2008 statistics are not yet available. There is low confidence in the efforts of Haitian customs and narcotics personnel to interdict outbound funds concealed on the persons of travelers. Suspicions that clandestine fees are collected to facilitate the couriers continuing without arrest appear to be well-founded. Interdicted persons are frequently released by the courts and the funds are ordered to be returned. During interviews, couriers usually declare that they intend to use the large amounts of U.S. currency (between $30,000 and $100,000) to purchase clothing and other items to be sold upon their return to Haiti, a common practice in the informal economic sectors. Suspected drug flights from Venezuela and boat shipments from Jamaica continue to operate with impunity.
Corruption is an ongoing challenge to economic growth. Haiti is ranked one of the most corrupt countries in the world according to Transparency International’s Corruption Perception Index for 2008. The GOH has made incremental progress in enforcing public accountability and transparency, but substantive institutional reforms are still needed. In 2004, the government established the Specialized Unit to Combat Corruption (ULCC) in the Ministry of Economy and Finance. The ULCC is finalizing a draft bill for a national strategy to combat corruption, including requirements for asset declaration by public sector employees and a code of ethics for the civil service. ULCC will submit the national anticorruption law to Parliament for consideration in the coming months. A new Customs Code bill, which includes the designation of customs fraud as a money laundering offense, has been submitted to the Haitian Parliament.
Haiti has yet to pass legislation criminalizing the financing of terrorism, although counterterrorist financing legislation is being drafted with USG assistance. Haiti is not a party to the International Convention for the Suppression of the Financing of Terrorism. Haiti reportedly circulates the list of terrorists and terrorist organizations identified in UN Security Council Resolution 1267. The AMLL may provide sufficient grounds for freezing and seizing the assets of terrorists; however, given that there is currently no indication of the financing of terrorism in Haiti, this has not yet been tested. Haiti is a party to the 1988 UN Drug Convention, and has signed, but not ratified, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption. Haiti is a member of the OAS/CICAD Experts Group to Control Money Laundering and the Caribbean Financial Action Task Force (CFATF), a Financial Action Task Force (FATF)-style regional body. In September 2007, the World Bank conducted an assessment of the GOH that serves as a CFATF mutual evaluation. The UCREF is not a member of the Egmont Group of financial intelligence units but has memoranda of understanding (MOUs) with the FIUs of the Dominican Republic, Panama, Guatemala and Honduras.
Despite political instability, the Government of Haiti is making progress on addressing deficiencies in its anti-money laundering and counterterrorist financing regime through its efforts to improve its legal framework to combat drug trafficking, money laundering, and corruption, and its action to reform the judicial process. President Preval has made these improvements a key element of his national agenda. He is actively seeking technical assistance and cooperation with countries in the region to reinforce Haiti’s institutional capacity to fight financial crime.
The Government of Haiti should finalize its draft legislation on terrorist financing to criminalize the financing of terrorism and become a party to the UN Convention for the Suppression of the Financing of Terrorism. Haiti should also ratify the UN Convention against Corruption and the UN Convention against Transnational Organized Crime. The GOH should move to enact the draft pieces of legislation pertaining to anticorruption and the new Customs Code bill. Haiti should further reinforce the capacity of the Haitian justice system to prosecute financial crimes; update the criminal code, reform the civil tax code and criminalize tax evasion as part of the country’s anticorruption measures. Other areas in need of improvement include an ineffective court system, weak enforcement mechanisms and poor knowledge of current laws governing this area. The GOH should move quickly to prosecute cases of corruption, drug trafficking and money laundering. This could send a positive message that financial crimes will be punished to the fullest extent of the law and also help garner broader public support for the rule of law, as has occurred with the recent asset seizures. Finally, initiatives are needed to enhance the UCREF’s capacity to provide timely and accurate reports on suspicious financial activities and meet the Egmont Group membership standards.